Automated Transactions and Tokenization
In our last post, we discussed how Blockchain Transactions enable low cost, peer to peer transactions. There are no middlemen and low fees. It’s a brave new world, and I dared to say that the whole nature of commerce changes.
Let’s talk about why.
In the excellent post, A typical day in a blockchain enabled world, our hero (a crocodile) shows us what the Blockchain future could bring.
The authors walk through a number of different scenarios. Almost all of them involve timely microtransactions orchestrated by an automated bidding system.
Our hero’s day starts with an optimized wake-up time that is the result of a bidding system. He automatically pays extra for a nice, long, hot shower. His lawn gets mowed by an army of independent and directly paid robots. He rents an autonomous car to drive him to work. He purchases his dinner from a neighbor with food to spare… and supplements it with a timely slice of pizza.
The entire set of scenarios sounds like a rapid fire version of eBay. But it’s entirely automated. The owners set the bidding rules and define the services offered. Everything from there onwards happens because of Blockchain.
One key idea that makes all of this possible is the tokenization of assets.
We all have a number of “things” that we own or control that cost us money whether we use them or not. The internet has helped us to make better use of some of these things. For example, AirBnB lets us generate revenue from space available in our homes. Lyft or Uber lets us generate additional revenue from our cars. There are ways to generate revenue from your broadband connection, your unused computer and many other resources you own.
But you can’t do this with everything. And in many cases, you can’t realize the full value either.
That’s where tokenization comes in.
Picture a house with a mortgage. There’s hopefully quite a bit of equity contained in your property. You may not want to go the AirBnB route. In today’s world, your only other choice is a home equity loan. Now we’re back to fees and middlemen. You’re paying to tap into the value of something you already paid for.
But what if the value of your home can be represented by a number of digital tokens? Now add an automated, low cost marketplace where anyone can buy and sell tokens. There’s almost certainly a market for tokens tied to the value of real estate, especially one that allows someone to buy just a fraction of a property. By selling these tokens, you’ve made your illiquid asset far more liquid. If you sell your property, the token holders all participate in the upside. If the value of the property goes down, who bears the decrease with depend on how the token is set up. The home owner could have sole responsibility, or responsibility can get shared between the owner and the token holders.
Tokenization is a way to unlock value stored in almost any kind of asset.
The Magic Combination
So you have automated transactions in a world where almost anything can be tokenized. You can offer trusted peer to peer transactions at almost no cost. Consequently, it’s easy to see how this foundation enables a whole host of novel transactions, big and small.
All of the scenarios presented In Crowley’s world of the future are possible. You’re just missing one thing: how do you know who to buy from? But that’s a topic for a future post.