TAKEN BY TOKENS

Emergence of a “Token Economy” through the convergence of “real” and digital assets within real and digital business models – converging on themselves

Whether in currency or real estate, digital music, the Metaverse, or even world wide web source code, tokens bring a very particular set of skills. Skills that have been acquired during a long evolution of blockchain technology. Skills that have the potential to create a decentralized token economy, disrupting business models, fundamentally changing the way we transact and trade. Tokenization can transform industries, making transactions more efficient, secure, reliable, and accessible. It creates a new meaning of what we perceive as value, as it makes digital assets just as tangible - and valuable - as real-world assets. Tokens: I will look for you, I will find you, and I will leverage you.

Muhammed Ahmed Expert in Residence

WHAT

  • Tokenization is the representation of an asset and its ownership on a digital using through distributed ledger technology. A token is a digital asset, stored securely on the blockchain.
  • Tokens are mostly known as crypto currencies, such as Bitcoin or Ether tokens. However, they can relate to anything, from votes, licenses, access rights, even to ownership of a song, or digital assets in a Metaverse.
  • There are broadly three categories of tokens: payment tokens serve the function of money (cryptocurrency), security tokens represent ownership of an underlying asset (financial instruments, real estate, art, digital assets in a 3D world), and utility tokens provide access to a particular set of goods or services (ICOs, collectibles, identity tokens).
  • A “token economy” will enable peer-to-peer transactions without relying on a trusted authority, thereby vastly increasing the volume of trade, potentially unlocking trillions of dollars in illiquid assets.
  • Tokenization accelerates the convergence of the “real” world with its tangible assets, and the “virtual” world with its digital assets, giving rise to a decentralized economy, powered by trust and unbreakable, distributed technology.

USE

  • Over 80% of the central banks are exploring Central Bank Digital Currencies (CBDCs). Token-based CBDCs will decentralize the currency system, allowing users to operate through wallets and transact in a peer-to-peer fashion.
  • Financial assets can be tokenized and digitally traded through Security Token Offerings (STOs) in cryptocurrency exchanges or security token exchanges.
  • Customers can purchase and trade digital assets for products and services – such as Nomura’s subscription service for a high-end Italian food delivery service – or tokenize their credentials to streamline transactions – such as Mastercard’s online shopping experience for Amazon customers.
  • Non-Fungible Tokens (NFTs) provide immutable ownership to unique, distinct, and non-replicable assets and has extensive applications in the art, music, intellectual property rights, and other collectibles.
  • Individuals and enterprises can own, buy, sell, trade, or offset their carbon footprint through Carbon Tokens such as Universal Carbon or Terrapass Coin.
  • Enterprises can reward customers with blockchain tokens in return for their brand loyalty, or to encourage sustainable behavior.

IMPACT

  • Decentralization can improve latency (through peer-to-peer transactions), reduce cost (by eliminating intermediaries through smart contracts), improve security (through cryptographically secure transactions), and increase transparency (through an immutable ledger of transactions).
  • Decentralized Autonomous Organizations (DAOs) can democratize and crowdsource organizational decisions – creating token-driven trusted systems for enterprises, ventures, and charities, etc.
  • Tokenization has fueled an innovative, now well-established way of fundraising for early-stage startups through so-called initial coin offerings (ICOs)
  • Smart Contracts can automate transactions and eliminate intermediaries, thereby reducing administrative processes and the dependence on scarce human resources.
  • However, decentralization brings many challenges: fraudulent transactions, scalability, and privacy concerns. These need to be addressed to truly unleash the token economy.

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