Slideshow Of The Week: Why Tokens Are Fundamental

This weekend I am going with a slideshow instead of a video or audio embed.

Some of my colleagues at USV have been spending a lot of time with regulators, elected officials, and lawyers helping all of these people understand cryptonetworks and why they are super important and need to be regulated with extra care.

One of the issues that many folks get wrong is the role of tokens in these cryptonetworks. For many reasons, not the least of which being the speculative frenzy surrounding cryptotokens, regulators and others simply see tokens as financial instruments and want to regulate them as such.

So my colleague Nick put together this deck to explain the “centrality” of cryptotokens to the operation of cryptonetworks. He published it on his blog earlier this week. I am republishing it here.

I would encourage everyone to hit the [ ] icon and read this in full screen mode.


Comments (Archived):

  1. William Mougayar

    The issue today is that most Western regulators are rushing to apply existing regulation instead of acknowledging the intrinsic novelty of the blockchain and being more creative.You can’t fit a square peg in a round hole.

    1. Richard

      FRED often cites the well know financial truth that “history doesn’t repeat itself but it often rhymes”.The securities act of 1933 is almost 100 years old and was designed to address many of things that the cryptocoin promoters want regulators to ignore.Its hard to see how the round hole of the regulations that address the risks of pawning unregulated securities doesn’t circumvent the square of cryptocoins.PS what you call being negative i think of as critical thinking

      1. William Mougayar

        I have an upcoming post that will address that actually. I have been interacting w regulators on both sides of the Atlantic. They have a tough job. I don’t fault them. Also, we tend to forget that they don’t make the laws; they just enforce them. Governments make / changes rules and laws.

  2. Woody Lewis

    Yes, I read this 3 times in full screen mode. It’s already affected my thinking. I’m writing a book on enterprise blockchain strategy, so it’s especially relevant.

    1. Prathamesh Shanbhag

      enterprise blockchain is a promising area…looking forward to the book. is the book specific to an industry?

      1. Woody Lewis

        There will be a section on vertical industry solutions to show use cases, but most of the book presents an architectural framework that every enterprise can deploy as part of its strategic platform.

  3. LE

    Some of my colleagues at USV have been spending a lot of time with regulators, elected officials, and lawyers helping all of these people understand cryptonetworks and why they are super important and need to be regulated with extra care.This slide deck is way to complicated for parts of the target audience. It needs to be dumbed down considerably. Or perhaps there should be several versions of the deck. This is going to leave many in the dust shaking their heads and not be as effective as it could be.Edit: To stress for the purpose that you are saying you are using it for.

    1. Nick Grossman

      funny, because this is vastly simpler than where we started, but of course you are rightthis is a complicated topic, and I do think it needs to be explained in layers, with lots of supplemental deep dives

      1. LE

        Nick I hope you take my comments and understand I am just trying to be helpful. The writing is great and it took you a great deal of effort obviously. What follows is why I think it needs to be altered for the audience.You (and anyone who probably reviewed this) are ‘the people who know to much’. As such your brain and their brain is not in a position to write it in a way that someone who doesn’t know what you know would need in order to understand, follow etc. To prove me right I am waiting for someone to reply to my comment with ‘what are you talking about it seems clear to me!!’. Sure because the audience is people who read and make comments on blogs. (not). And nobody is going to put in extra effort to understand it why should they? Many people who read it won’t have the guts to tell you they don’t understand it either. This is why tech people have gotten away with murder for years with products. Everybody assumes ‘it’s me that is stupid’.This needs the NY Times ‘8th grade level’ style for lack of a better way to put it. One thing you can try to do (that I used to do with marketing pieces) is to find a person of below average intelligence (or no knowledge about the topic and not particularly motivated or technical in any way) and hand it to them to read. As they read watch their face (film it if you can) and see exactly their reaction and their eyes. Yes it takes work to do this. Or average intelligence with no clue. You’d be surprised how quickly people get lost if the story is not told in a simple way. And you are trying to sell people here. If they don’t follow the deck they aren’t going to buy what you are selling. You can learn a great deal by watching facial reactions.Small example in the first slide. Right now a word like ‘internet’ means something to people. They ‘chunk’ that and it needs no explaining. But do you remember when the word was used in the early 90’s? Not the same. It was a show stopper for most people. Well same exists when you say something like ‘cryptonetworks are decentralized networks built on top of the internet that provide a wide variety of digital services such as …’ Right with that statement people are going to have glassy eyes. And when they have glassy eyes they don’t hear or understand anything that comes after that. They shut off. Sure some may just end up agreeing so they don’t look stupid that does happen.And nobody (normals) thinks about the fact that Google, Facebook or Amazon are ‘centralized internet applications’.If I was a regulator or a decision maker (and busy with a million things to do, right?) I would react in a way that said ‘woah we have to slow down this is really complicated and we don’t want to get it wrong let’s study it for a few years so I we can all become comfortable with it’. Of course you don’t want that to happen obviously. If I was an attorney and paid by the hour otoh I would think ‘great let me bill for the time to understand this for my client’ <— !

      2. Bruce Warila

        I didn’t think it was complicated, but it seems to be missing a frontend that compels the viewer/listener to care enough to pay close attention. For example: begin by describing what ‘centralized trust’ looks like (a picture that could be the financial district in any major city); describe the costs (to humanity), the pitfalls (corruptible and attackable), and the inefficiencies VS trustless, decentralized, token-driven protocols.Related: seems to me that the environmental footprint of mining compared to today’s centralized trust machinery (e.g.: a financial district in every city) is far less…even at scale.

    2. cavepainting

      I agree with you that this is not for the layman, but in reality, it is not that complicated for someone with a tech background. If anything, I would say that it goes the extra mile to simplify some things and even to a point of fault.At this point in time, do we really need to dumb down crypto networks for mainstream consumption? I am not sure it is mature enough for that yet. It is like explaining the internet in 1993 to someone on the street. They do not care and neither should they.

      1. LE

        It’s to complicated even for a busy person who has a tech background. I have been using Unix since 1985 (self taught) and consider myself a highly advanced ‘prosumer’ we can call it. And it doesn’t pass my puny brain test. . And with respect to ‘not that complicated’ the people that USV is trying to convince are skeptical and there is no reason to do anything but spoon feed it to them in such terms that it takes them no effort whatsoever to understand. They are simply not going to climb mental mountains and why should they? They are under no obligation. It is USV (and others) trying to persuade them for their benefit.You remember how as people, regular people who are smart in many ways, couldn’t or didn’t want to program VCR’s? But yet companies kept saying and thinking it was simple.Why does Apple have such a large market cap now? Because they took something that everyone else didn’t understand about human nature (or ignored apparently) and made it simple for those people to use. And no matter how advanced someone is each of us appreciate it. (Iphone)Finally this:At this point in time, do we really need to dumb down crypto networks for mainstream consumption?No we don’t. My comments are related to the goal and target audience of this piece which was (note not ‘mainstream’):Some of my colleagues at USV have been spending a lot of time with regulators, elected officials, and lawyers helping all of these people understand cryptonetworks and why they are super important and need to be regulated with extra care.

    3. PhilipSugar

      Your point is right but is sad.

  4. Richard

    The role of regulators should be to minimize the likelihood of long tail risks that result in ruin. There is not a single slide that speaks of the known risks or the contemplates on the unknown.This seems more like a pitch deck than a serious attempt at what financial regulators should be thinking about.

    1. Nick Grossman

      it’s definitely coming from a “here’s how this works” point of view, as opposed to a “let’s discuss the known risks” point of viewbut I do think that is an important thing to do as well

  5. kidmercury

    Tokens are the same as virtual currencies that are at least several decades old, which in turn are the same as alternative currencies which have been with us throughout recorded history.The nation state system will naturally resist something that threatens its survival. At some point cryptoenthusiasts will need to acknowledge the competitive relationship between the nation state system and cryptoeconomies. How best to win this battle is perhaps a line of thinking that will yield more long term vakuefor all cryptoenthusiasts.

    1. Girish Mehta

      It is very strange that cryptoenthusiasts do not seem to get this.Like I said here previously, right now is just the beginning of the overwhelming regulations and scrutiny that will come to bear upon this space.

      1. PhilipSugar

        We will see if crypto morphs back into that. Yes for a while it was a currency (mainly at least on the 25k student college campus I am on for drugs)Then it morphed into a store of value, and then it became a speculative investment. But people have stopped using it for transactions and are using cash, US Dollar in this case.So is it a currency? Or something akin to Gold and Diamonds? I’d argue the latter. And other than it’s volatility (somebody should set up a fund that limits this through options) it has promise in that it is the ultimate in portability of wealth, and that always has been desired. How do I move my money? And as Kid says that does threaten the nation state, because if I can just move and the Government can’t prevent me from taking my wealth, then it very much threatens nation states.And I see this again on my campus with approximately 10% Chinese students. The amount of wealth being transferred is huge. How are there dozens of R8’s, F40’s, Mercedes G’s and S600’s etc. (hell I don’t know how you insure the thing with a kid) Some serious wealth is moving.I do not believe in the “I am a citizen of the world” that is a high class statement that only the rich can make. The rest of the population has to work every day for survival, and rightfully does not want a race to see who is willing to work the hardest for the least which is naturally what people with capital want. They have seen where that goes.

        1. LE

          And as Kid says that does threaten the nation state, because if I can just move and the Government can’t prevent me from taking my wealth, then it very much threatens nation states.Well we both know that the amount of people that care about that or even think about that is almost certainly less than 1% maybe 1/10th of 1%. I don’t care about it. Maybe the very rich do because they have a host of worries that normal people don’t.There was an article in the WSJ about how education is such a large export of this country. You know (as your comment indicates) how many chinese (and other foreigners) are paying full freight for tuition.…Now that is threatened. So the colleges are worried and they are saying ‘we will now have to raise tuition for others if we can’t collect that full tuition from foreigners!!!’. Now look at the percentage of increase in tuition and it also mimics foreign students attendance and rise in our schools. So in this case the availability of money didn’t offset us students tuition it actually increased it. It made colleges less fiscally responsible. Just like when a person makes more money (and easy money) they spend more and the same for a company.Like I say about these companies with billion dollar profits. “And that’s what’s left after pissing away untold sums that you can I could never imagine spending”. So sure if a revenue stream is lost (of easy money at full profitability) you are going to whine and complain. After all they don’t care about lost jobs here in academia.

        2. Girish Mehta

          If it becomes mainstream, it is a bigger threat than that. Cryptoenthusiasts don’t seem to acknowledge that.It is not a threat if it remains an alternative asset class like art.

      2. @mikeriddell62

        The crypto enthusiasts aren’t politically savvy enough to recognise the incredible force of inertia.De-politicising the new solution is the only way to get there. Go right up the middle with no left and no right. Just good versus bad.

    2. @mikeriddell62

      Agree. It needs to be a hack, not a fight.

  6. awaldstein

    Big fan of this deck and have shared it to a few clients.

  7. jason wright

    the traditional banking and financial system is now walking a very fine line. if they fall from grace again (a la 2008) they will not be rescued at the public’s expense. they will be replaced. the public will turn to independent block banking on mass. this is my expectation for the coming 2020s.

    1. Girish Mehta

      Lets see. We had the same conversation here approx 3 years back I think when I said that while I do expect the existing monetary system to eventually fail, I don’t see a path from that failure to the mass adoption of cryptocurrencies. Monetary systems have collapsed before. They have been replaced with new monetary systems supported by central banks. Not at all clear that one (failure of current monetary system) leads to the other (mass adoption of cryptocurrencies).Lets see after another 3 years.

      1. jason wright

        but i see the existing monetary system and central banks as synonyms. previously there was no alternative. now there is. that’s the new paradigm.

        1. Girish Mehta

          A monetary system exists for a several decades, then is replaced with another. The institutions behind it do not go away. The institutions that agreed to the current monetary system can get together to establish the next system, the cast of characters changes. Monetary systems have ended 2-3 times in the 20th century (depends on where you define the end).As the world operates today, the (1)-monetary system/central banking and (2)- the nation state cannot be separated. Betting on the one going away is an implicit bet on the other going away.

          1. jason wright

            They do go away. There is nothing immutable about such institutions. Everything has its beginning, everything has its end.

          2. Girish Mehta

            There is precedent to what you say. The US for instance on two separate occassions created a form of central bank and then shut it down. The First Bank of the United States (1791-1811) and The Second Bank of the United States (1816-1836). The First Bank was chartered for 20 years and the charter was not renewed. The Second Bank of the United States was chartered for 20 years; Andrew Jackson ensured the charter did not get renewed (it became a election issue in 1832) and the bank was eventually liquidated in 1841.However, I don’t see that happening right now. See the impact that three words by Draghi – “whatever it takes” had on the subsequent course of events in the Eurozone.

          3. @mikeriddell62

            The first phase of the transition will be a bridge between two monetary systems. It will complement, not compete. It will support nation states because there is a need for it to do so. But eventually it will lead to mass adoption because it is more sustainable. And then it will have taken over (will have been replaced). It’s a process not an event.

          4. kidmercury

            upvoted, this is real talk right here!

  8. iggyfanlo

    Great slide particularly in its clarity… my one point of disagreement would be in the “individual user” alignment… I read it as supply and demand want the same thing which i think is wrong.. miners want a high price for tokens; “real suers” (not speculators) want a low price (e.g. data storage cos want a high price for a GB; consumers want a low price for a GB). So I think we can achieve an equilibrium when finally we get real user demand and get a market setting price mechanism for utility not speculation.

  9. Redwoods

    can anyone recommend a good book/paper on tokenomics – I’m looking for instruction on how to build an economic system for a new coin that is sustainable and value enhancing. [Not tips on how to invest in the crypto market]. Thanks.

  10. Vendita Auto…Interesting to consider if a single African currency foundations was developed on the blockchain crypto model

  11. kirklove

    I’m waiting for the in-person at Lilia.