Cryptocurrencies like bitcoin have proven to be the strongest species so far to emerge from distributed ledger technology. But there is increasing interest in the even larger structures that form and thrive off of the blockchain: tokenized ecosystems.
As dynamic entities with their own inner workings, tokenized ecosystems are subject to the changes wrought by the larger environments they reside in, much like their biological counterparts. Resembling rain forests, deserts or oceans, they demonstrate a remarkable ability to self-organize, scale and sustain.
They are also driven to simultaneously collaborate and compete, with an increasing number of blockchain players seeing tokenized ecosystems as the space in which to make a play. Not surprisingly, there are nuances, challenges and opportunities aplenty in the vertical, making the current state of tokenized ecosystems worth a deeper look.
While the tokenized ecosystems’ purpose is to take on complex tasks, they can still be explained succinctly.
“A tokenized ecosystem is simply an economy or community where one or more kinds of property or resources are represented on blockchain as a kind of token or tokens,” said Adam Levine, CEO of the cryptocurrency and token infrastructure company Tokenly. “You can have a decentralized ecosystem that isn't tokenized or a tokenized ecosystem which isn't decentralized, and it's also possible to have a decentralized tokenized ecosystem. They're not mutually exclusive or required for each other to operate.”
According to Levine, important benefits are realized by ecosystems as they become more decentralized, chief among them an increased resilience against unexpected shocks or failures stemming from its participants. Conversely, he pointed out that the more decentralized an ecosystem becomes, the more difficult it can be to control the message or the vision for that ecosystem as it moves forward.
But those trade-offs are supposedly worth the effort to build up tokenized ecosystems.
“Without tokenization, ownership in the internet age — for the most part — stays put,” Levine said. “Tokenization makes transferring ownership on the internet as simple as sending an email, it removes barriers to trade globally, and even modernizes barter transactions. So tokenization and decentralization are both ways to increase the power of the customer or community while reducing liabilities for the parties, traditionally, who hold power.”
Apples to Amazons
For real-world perspective, Levine pointed to a long-standing business model as an example of the benefits that a decentralized, tokenized ecosystem can deliver.
“In the traditional music ecosystem, what looks like purchasing a song is actually only a ecosystem-specific license,” he explained. “In practice that means that if I own a song on Apple’s iTunes but want to add it to one of my Amazon Prime playlists, I can’t. “
Blockchains provide a significant option for evolving the music model.
“Apple and Amazon behave this way because, before blockchains, to do anything else required them to trust and, to a large degree. rely on each other, even though they’re competitors,” Levine explained. “Blockchains are, at their core, a way for multiple parties who don’t necessarily know each other, and certainly don’t trust each other, to work together as if they did.
“Decentralization and tokenization could make ownership of music online truly ubiquitous. By decentralizing the database, we start to tear down the walls between platforms. Instead of each platform charting its own proprietary map of the musical universe, musicians and rights holders make their work clearly available to anyone willing to accept the deal they define.”
Getting It Together
Before a decentralized ecosystem can be implemented to improve any industry, it needs to be built. For Vite Labs, a project working to build a decentralized ecosystem, the process kicked off with a white paper and fundraising that was completed in mid-2018.
The result was a relatively rapid build, which saw Vite construct a team of 40 people employed in Beijing, Sunnyvale, California, and San Francisco, including engineers from Baidu, Alibaba and Tencent.
“The toughest part of this process was to hire the best people,” Luke Kim, Vite’s chief marketing officer, said, “since there are very few blockchain developers to begin with.”
For Breaker — whose artist-driven entertainment DApp recently released Alex Winter's blockchain documentary Trust Machine: The Story of Blockchain — the research and development process was focused on creating a uniquely functioning intellectual property (IP) play.
"Programming IP into tokens and providing a distribution platform to give tokens relevance by administering all rights management on the blockchain,” was the flagship opportunity, according to Breaker’s CEO Zach LeBeau. “On the surface there appears to be other competitors, but I am not aware of other companies pioneering entertainment rights management on the blockchain.”
When code is open source and documentation is robust, decentralized ecosystems can more easily spring up. These characteristics make Vite’s technology, for example, useful for creating the price-stable cryptocurrency known as stablecoins.
“In terms of stablecoins, API’s for token minting and token destruction are readily available, making the process of stablecoin issuance and operations easy,” said Kim. “Benefits include a fast and fee-less settlement layer, convenient development and operating processes thanks to the aforementioned coin minting and coin destruction API’s, as well as the opportunity for a stablecoin to list on our DEX as part of a trading pair, thereby driving adoption of that stablecoin.”
Meanwhile, as in other blockchain verticals, decentralized ecosystem developers are waking up to the fact that users don’t care if their fave-rave game is blockchain-based, any more than they might care that the operational system behind Instagram is Ubuntu.
“In fact, we believe it is best when the user cannot even tell that blockchain [technology] is involved,” Kim said. “The point of new technology is to match or exceed the user experience of existing solutions."
Anyone aspiring to be a blockchain developer themselves should prepare for this public agnosticism, as well as the wild mood swings that will come with constructing their first decentralized ecosystem. For those who conquer the dizzying complexities that separate these creations from centralized solutions, a universe of new possibilities awaits.
David Weiss is a content strategist and journalist based in New York City. Visit him at www.dwords.com.