If we assume the WWW revolutionized information during Web1 and Web2 revolutionized our interactions, then Web3 could revolutionize how and what we associate as valuable. Tokenization (in sequence with Blockchain technology and DeFi protocols) offers a new way of making real-world assets into a digitized ownership model using digital tokens. Digital tokens take on new molds from physical and virtual assets. Real estate, commodities, credit lines, derivatives, digital identity, valuable collectibles, or investments convert these modes into digital units that can be bought, sold, traded, and exchanged with no centralized intermediaries. This digital economy is still in its early stages still, but the possibilities of these technology are beyond our grasp and have the potential to shift the entire financial model of exchange of value. The rapid pace of open accessibility (DeFi ecosystem) allows users to digitize their assets in the same form, shape, and realm bringing endless accessibility to what the web will do for us.
After Reading This You'll Understand:
How the tokenization structure will change users' experiences and interactions in Web3, impacting our daily life by closing the gap between the virtual and digital world with a focus on the socio-economic implications.
Tokenization or tokenizing assets in this context is disrupting the way we usually tend to invest in, buy into and manage assets. Therefore, tokenizing assets such as real estate, cars, art, luxury goods and other collectibles is a new way to create new value.
What are the different types of tokens available today, and how will they be used and transformed into phygital forms (the concept of using technology to bridge the digital world with the physical world to provide unique interactive experiences for the user.)
The macro forces taking shape in Web3 shifting the users' perspective on what is considered valuable, from investment opportunities to community as the power towards co-creation to creating lasting change and experimentation.
The Token Economy
Token economics offers a solution to bridge the physical and digital gap between our increasingly virtual worlds. As our lives grow phigital, the need for a complex digital economy of value is taking shape with the growth and ongoing developments of tokens. Tokens are not a new concept and have existed for centuries representing different forms of economic value. Yet the modern exchange of values with data has divided into various roles with the age of Web3 moving towards the token economy.
In Web3, the token economy takes a bit of a different approach where tokens are forms of value because of the data attached (The token can be any data set; the market determines its value). The structure of tokens on a distributed ledger that allow dynamic exchange and complete transparency is the most attractive quality when developing token economics. This realm is the economics of goods and services that have been tokenized and that can run without intermediaries and third parties with the help of blockchain technology. This is where Blockchain comes into play. Blockchain technology enables these economies to function without the need for intermediaries and third parties (Decentralized/Transparency).
🗣 Tip:While a user engages in virtual economies, data is stored inside the users' digital wallets, which pushes the token economy forward into new white space opportunities that work to optimize the status quo.
Generally speaking, a token could be a particular asset and/or contain utility. Within blockchain technology, tokenization converts something of value (an asset) into a digital token recorded and used on a blockchain application. Anyone can tokenize an investment if that asset can be owned it can have value. These tokens can take many forms and be programmed with unique characteristics that expand their use cases, for instance, security tokens, utility tokens, or cryptocurrencies (list below for more).
Tokens can provide an investment opportunity and give users access to online communities. These ecosystems of users are now possible because of protocols like Collab.Land, Roll, FWB, and Source Cred. These Web3 platforms are powered by social community tokens that bring collective culture and technology together — a bridge between artists, creators, and the technology that drives traction and fosters joint missions. A social token is a type of Blockchain personalized and traded for a specific offering, allowing creators to develop and nurture a local economy for their network of users. This development of transferring followers' skills and offerings into a social currency shows the keen value behind and what social values can be represented in the given token. In return for purchasing the social token, the followers can unlock a personalized experience. By enabling this process, social tokens deepen the convergence of phygital experiences and uncover new dynamic and multidirectional interaction methods. Through this framework, both the creator and the user are rewarded.
Behaviors: Systems for Incentivizing
The built-in form of incentivizing into a system motivates behavior towards a shared goal or method. Tokenizing will change how users interact with the web and IRL circumstances, allowing these experiences to become ways of collecting different forms of assets. From the intellectual property of NFTs to community missions that align and inspire tokenization for the public good, it can be the driver society has been missing to push forth this new generation of internet users. When distributed as tokens in general ledgers, finances will be easily traceable and have higher authentication. With various advantages, the process of tokenization will thrive even more and will provide the blueprint for economic transactions for future generations.
Decentralized: Blockchain and Cryptocurrency Revolutionize
By delegating control to users, tokenization is a commitment device that prevents a platform from exploiting users. This tradeoff mechanism of allotting tokens is a more appealing funding scheme. The decentralized nature of Blockchain creates a token economy in which the community's revenue can allocate to content producers and users who make value.
Monetization: Collaborative Value Exchange
With co-creation opportunities being the central premise for building and sustaining the Web3 framework, monetization sits right alongside this: the ecosystems reward participants, collaborators, contributors, and developers for their efforts and participation. By aligning incentives across members and stakeholders, tokenized Web3 communities can maximize social capital and utility value. Through issuing their tokens, communities can become ownership economies, with members enjoying a direct connection to like-minded peers, creators, and brands they love, while having a stake in the collective value upside they co-create. The value of the community token asset determines its utility value, social capital, and ownership value (community governance and resource allocation) to holders.
Web3 is the next generation of financial investments that can help bridge the economic divide between income inequality. A big statement, I know, but when analyzed, it has the factors in creating this change. Educating others on the token economics structure, the drivers and actions taking shape today will inform the adoption and pace of this demand.
Tokens simplify raising funds across borders, opening up new markets and potentially new customers. It allows for more complex users to be involved in a value chain. Assets will enable redistribution of wealth as anyone with a smartphone can contribute.
The goal is to create more open, connected and intelligent applications that leverage a machine-based decentralization with Blockchain and tokens to provide alternate ways to accept and deliver payments. Tokenization will transform our economy like stocks, and stock markets did in the 17th century. For the token economy, we must create the right environment for these innovations to happen where users, developers, researchers, writers, and creatives all forge together to do what it takes to realize this potential. Optimist much, yes always, but the innovation is evident once understood.
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Technologies: How Blockchain Transactions Work
DLT (distributed ledger technologies): A type of database that is distributed across multiple locations, regions, or participants. A distributed ledger must be decentralized. The technology provides a verifiable history of all information stored in that record.
Blockchain: The blockchain is one only one particular type os distributed ledger. The data or transaction is recording asset transactions (smart contracts), creating a record of that element and establishing a consensus on its veracity on the sequence of blocks.
Smart Contracts: They work like a classic contract from the real world. Transactions are trackable and irreversible. An agreement between two parties is written into the smart contract in the form of programmatic logic. As soon as the subject of the contract is fulfilled and a certain amount of ether changes hands, this contract is considered fulfilled.
Proof of Work: A form of cryptographic proof in which one party proves to others that a certain amount of a specific computational effort has been expended. Verifiers can subsequently confirm this expenditure with minimal effort on their part.
Poof of Stake: a class of consensus mechanisms for blockchains that work by selecting validators in proportion to their quantity of holdings in the associated cryptocurrency. This is done to avoid the computational cost of proof-of-work schemes.
dApp (decentralized application): A token is built on top of a blockchain in the form of a dApp. Think of your smartphone’s software (Android, iOS…) as the blockchain and the dApps
as your Apps like WhatsApp. The following parts will give high-level overviews of different
DeFi: Decentralized finance offers financial instruments without relying on intermediaries such as brokerages, exchanges, or banks by using smart contracts on a blockchain.
Hash: The timestamp, author signature, and unique fingerprint immutably prove who documented what and when. This function that meets the encrypted demands needed to solve for a blockchain computation.
Nodes: Blockchain nodes are network stakeholders and their devices authorized to keep track of the distributed ledger and serve as communication hubs for various network tasks. A blockchain node's primary job is to confirm the legality of each subsequent batch of network transactions, known as blocks.
Tokens classified based on the purpose of use:
Cryptocurrencies: These tokens serve as crypto tokens, store a certain value, and can be used as a transaction medium.
Fungible Tokens: Can be sold in different forms and exchanges where the ability to exchange an object for another of the same kind and value and people have figured out that a unique, digital asset can be interesting and even have a significant monetary value.
Non-fungible Tokens (NFTs): They cannot be traded or exchanged at equivalency. They are unique and are not divisible and not interchangeable.
Network Tokens: These tokens are not for use as a cryptocurrency but only have functionality within the issuer's system. They are intended only for a specific procedure.
Investment Tokens: These tokens are primarily used for investing in a particular entity or underlying asset.
🗣 Tip:Web3 cryptos are a new wave of cryptocurrencies (A cryptocurrency is a standard currency used for making or receiving payments on a blockchain, with the most popular cryptocurrency being Bitcoin (BTCUSD).) that focus on making the decentralized vision of Web3 a reality.
Reward tokens- Rewards tokens make you passive income, in other words, without you doing anything. Just keep your position and watch the coins accumulate in the crypto wallet of your choosing.
Currency tokens - A virtual currency token or a denomination of a cryptocurrency. It represents a tradable asset or utility that resides on its own blockchain and allows the holder to use it for investment or economic purposes.
Utility tokens - A digital token of cryptocurrency that is issued in order to fund development of the cryptocurrency and that can be later used to purchase a good or service offered by the issuer of the cryptocurrency sold utility tokens as a method of fundraising for the start-up.
Security tokens - Is a peripheral device used to gain access to an electronically restricted resource. The token is used in addition to or in place of a password.
Asset tokens - The process by which an issuer creates digital tokens on a distributed ledger or blockchain, which represent either digital or physical assets.
Personal Access Tokens - Personal access tokens (PATs) are an alternative to using passwords for authentication. It is a way of exchanging tokens for the issuers' services or products, thereby creating one's own market.
Creator Tokens - A creator coin is an individual, group, business, or entity issuing its cryptocurrency. These social tokens are designed to link value between creators and communities; this currency can be used for payment of services between the creator and their community or to unlock access or benefits.
Community Tokens - are created for memberships or communities.
Brand Tokens - are blockchain-based loyalty points that brands use to incentivize consumers to purchase their products.