The Great Disintermediation begins - Altcoins will rule business transactions in the Crypto 3.0 world. Here is why.

And so it begins.

The traction started by Bitcoin (Crypto 1.0) is now entering into its new phase (Crypto 3.0). IN this phase, the blockchain tech is now taking shape in resolving pain points and seeks to disintermediate the sharing economy (move over, Uber and Grab, etc).

Let’s think about it for a minute. The sharing economy’s infrastructure is wrought with issues – centralisation and even to a certain degree monopolisation. The intermediary can end up in a winner-takes-all. Just think about it – with deep enough pockets from investors, Grab was able to play the long game, drive Uber out, and then it started raising prices, causing pain for the average Singaporean who uses its services. In the sharing economy, similar startups are the disruptors to the digital economy.

Now, these unicorns might be about to be disrupted – by the token economy. Not to mention, any institution that is sitting on a rent-seeking basis like banks, insurance companies, REITs, stock exchanges/brokerage houses, etc. will be eventually disrupted.

Here is why.

In the token economy, the way in which tokens operate and thrive will depend highly on several factors, that include their “issuance, supply, demand, validation, usage, behaviour and how these matters affect other things in the ecosystem” (Lee, Lo and Wang, 2021). The decentralised network and system creates an incentive for all participants.

Let’s apply that to stock exchanges that #FTX and #Binance are now entering in to disrupt. On the Solana blockchain, #FTX will offer tokenised stocks, currently applied just to a select few that are tech stocks – highly regarded and traded for on the stock exchange. You have a buyer or investor who wants a piece of that tech business. He usually goes to a brokerage house that helps with the execution of the order with the stock exchange which the business is listed on. #DeFi for the win! 

Cutting out the middleman

What if, instead of going public through this mechanism, companies that go public can now do so with the blockchain? Each “piece” of the company is now sliced down to shares (which also allow for further stock splits or consolidations) – and then each stock sold to the public. You can imagine the level of disintermediation here. Of course, this is made possible because of the emergence of blockchain, cloud computing, deep learning, amongst others.

In this P2P (peer to peer) decentralised system, it all comes down to three basic elements that include how people use the tokens as a means of exchange with each other within that economy, the rewards that result from usage and interaction, and specific behaviours that those belonging to this economy need to adhere to. Let us remember that tokens have as much value to the extent of the community of people willing to accept it and bestow it that particular value. In and of themselves, tokens have no other value.

To this end, when creating altcoins and other tokens, it is not a blind faith of pumping out a coin that has infinite supply and getting the next bigger fool to buy in. What needs to happen in a responsible manner, is that the token creator must consider sustainability in order for every one within this economy to succeed.

This will include – utility and its applications in every day life – businesses especially need to come on board to build on this ecosystem. Also, freely available rails for trading and transactions with the token. The token must also be subjected to some form of control within its algorithm so that it does not end up succumbing to inflation through too fast an issue or having too much being issued at any one time. This reliability that is coupled with legal aspects will make the token thrive in a sustainable and responsible manner.

If you are a developer or are thinking of creating a token of your own, there are a lot of factors to plan and think through to ensure that your token becomes used and accepted in the broader community and the world. Indeed, of the more than 5,000 cryptocurrencies around, most of them will cease to exist within the next 5 to 10 years. This is because most were poorly conceived and will not survive.

But those do, will not only survive but thrive because they are built for the new brave world, with a set of rails that will hollow out rent-seeking behaviour of the yesteryear economy made possible by exploiting centralisation. Will it still be possible to exploit decentralisation? Well, this story remains for another day to be told!

Yours,

Chief Editor

BBA Market Perspectives

@bbamarketpersp

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