Cryptocurrency for Change: How Token Economies Are Upending Markets

These 4 industry case studies show how cryptocurrency is shifting our global economy — and fast.
cryptocurrency-token-economies headshot of author Rhian Lewis
Rhian Lewis
Expert Contributor
March 22, 2022
Updated: March 23, 2022
cryptocurrency-token-economies headshot of author Rhian Lewis
Rhian Lewis
Expert Contributor
March 22, 2022
Updated: March 23, 2022

Let’s consider some of the areas where using a specific token could provide incentives for people to interact with a network, automate payments or create a monetized market where there was not one previously.

The purpose of these case studies is to look at public networks where the incorporation of a token is critical to their operation and show how blockchain technology can work with a convergence of other twenty-first-century innovations such as the Internet of Things (IoT) in order to improve people’s lives. 

It’s important to remember that these scenarios, while they may not sound plausible now, are quite probably business models that will become familiar over the coming years. If we cast our minds back a decade or so, it is easy to forget that sharing economy businesses such as Airbnb and Uber would have engendered the same degree of skepticism. After all, who would get in a stranger’s car or go and stay in a stranger’s apartment in a different city in another country? People would have come up with all kinds of reasons why this business model was doomed to fail if they were asked to analyze the prospects of companies like this in 2000. So, it is useful to remember these examples as you read on, and bear in mind that expectations and social norms change along with technology.

4 Token Economies Changing How We Think About Crypto

  1. Automotive
  2. Energy
  3. Media
  4. Gaming and Art

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1. Automotive

The automotive sector is a great place to start as an example of how token economies could work because it is already a market that is undergoing fundamental change, with autonomous driving, electric vehicles, vehicle connectivity and shared-ownership/rental schemes all disrupting the traditional business model of selling vehicles via local dealerships. If we look at a city like Berlin, where car-sharing schemes are popular, as early as 2016 it was estimated that ownership of private cars was 15 percent lower than it would have been without the presence of schemes such as DriveNow and Car2Go. Analysis by McKinsey sees this type of innovation as a positive change rather than an existential threat to the automotive industry, with the potential to add $1.5 trillion in economic growth via these new opportunities.

So, how would a cryptocurrency token fit into the mobility — and specifically the automotive — sector? In order to understand some of these examples, it is necessary to make a mental leap where one regards transactions, whether on a blockchain or on some other kind of network, as something that can be made by and from machines and devices, rather than by and from one human to another. There are already more connected devices on the planet than humans, and most of these interactions are device-to-device rather than initiated by humans.

Many of these will be on the same network, such as sensors within a factory or a warehouse, but where there is a need for payments to pass between these devices, which may be owned by different people, then there is an issue of trust. How does one device prove it is really what it says it is? How can a payment be authorized without human intervention — and what if the payment is so small that it would be inefficient for the banking system to process it?

If all of this sounds rather abstract, let’s consider a concrete example. 

In 2017, a hackathon was held at an event in Dubai whose purpose was to promote technology ideas for smart cities. A team called Project Oaken was one of the three finalists, presenting their idea for allowing cars to pay for their own tolls automatically. As they explain: “The Tesla tells the toll gate that it wants to pay the toll, causing the toll booth to trigger a smart contract transaction. The toll booth takes the raw Tesla data and communicates it to the blockchain in the form of an IPFS hash.” 

You may wonder what the problem is with the current situation where car drivers simply pay tolls by using cash or card, or in the case of special areas such as London’s congestion or ultra low emissions zone, where the user sets up an account and is automatically billed. 

To begin with, fixed-rate toll stations where the driver pays manually are very inefficient. Not only do they cause queues when drivers have to stop and pay, they tend to be a blunt instrument as a flat fee is easier to charge and understand. To optimize traffic flow in smart cities, the idea scenario is to be able to charge a variable fee, depending on traffic congestion at the time of day. If the vehicle could itself make a machine-to-machine transfer, while informing the driver what the fee was likely to be, then this would reduce the need for human interaction, smoothing the traffic flow and avoiding the need for the driver to provide their bank details and sign up for schemes that may vary city-to-city.

The idea of making payments in some kind of global, cross-border currency is also appealing, while an automated process fixes the problem of drivers in new cities not being aware of what tolls they should pay, or how to sign up. A recent case made the news where an unwitting Spanish motorist ran up a fine of £20,000 for driving in and out of London twelve times while on holiday, without realizing his 4x4 violated the low emission zone rule. 

London’s car-sharing schemes currently incorporate the congestion charge into their rental fee, and this could also be done on a pro-rata basis in a peer-to-peer network. Research done on the Ethereum blockchain by startups such as Slock.it predicts a future where one’s possessions can use their spare capacity to earn their owner’s money in an entirely automated, decentralized way. 

How can a payment be authorized without human intervention — and what if the payment is so small that it would be inefficient for the banking system to process it?

If you park your car on the side of the street and inform it that you will not need it for a certain amount of time, the car can be made available for other people to rent. The hirer could identify themselves using a self-sovereign identity system, which would enable them to reveal as much or as little about themselves as they wished. It could, for example, identify them as a reliable renter of cars without revealing their name and address to the car owner. The car itself would then charge the renter for the time and mileage consumed, including any tolls or taxes, according to a pre-agreed formula. A geographical limit on where the car could be used would be written into the smart contract, and the car would be programmed to respond to the smart contract and not be driven outside the exclusion zone. Yes, much of this would be possible without a blockchain, but using a decentralized network means a lot of the hard work surrounding identity, payments and privacy is made easy and quick.

The data generated by our cars is not only useful for car-sharing and other new business models. Modern cars generate vast amounts of data — about weather conditions, other vehicles on the road and their geographic location, as well as information about engine performance and so on. This information is currently available only to the manufacturer or the dealership, but imagine the following scenarios:

  • Owners of vehicles can allow their car to report road conditions to allow other cars’ navigation systems to make better decisions about routes. 
  • Vehicle owners can be seamlessly paid to leave their car at home on certain days of the week, using location data.
  • Insurers are empowered to make better decisions and drive down the cost of traveling for responsible individuals.
  • Town planners can use geolocation data from vehicles, cyclists, pedestrians and public transport vehicles to make better infrastructure decisions.

The ability to receive micropayments in exchange for small pieces of data that can be aggregated and then consumed and analyzed in order to make cities run more smoothly is just one part of the puzzle.

So, where do blockchains and integrated token payments come into this equation? Is all of this not possible without using a blockchain? The answer is that yes, of course it is possible, but a blockchain allows us to provide validated data that cannot be rewritten, thus allowing companies to make sensitive commercial decisions based on this source of truth, while cryptocurrencies allow frequent, ambient payments to be made to unknown individuals. For example, imagine you are driving somewhere on a busy road and you are not particularly in a hurry. The driver behind you, in contrast, is late for work and would like to overtake. A seamless microtransaction could be made between vehicles, allowing their car to overtake yours. You do not have to consciously make a decision or provide the other driver with your bank details — it happens automatically.

It might sound like science fiction now, but along with autonomous cars, drone-enabled takeaway deliveries and fridges which restock themselves automatically, it will become part of our daily lives at some point.

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2. Energy

One of the reasons for using a blockchain for device-to-device transactions is that if the blockchain has a native token, data and payment is able to form part of the same transaction.

Another interesting example is the idea of peer-to-peer electricity trading between neighbors — of particular interest for those who own renewable generation sources such as solar panels or windmills and want to be able to sell their excess power. How would this work in real life? Let’s take the example of neighbors in a street of townhouses. Each house on one side of the street has a roof that faces south and are fitted with solar panels, while the other row of houses are north-facing. The houses on the south side of the road produce enough power to fuel their homes, particularly in the daytime when the residents are out at work and their batteries are filled to capacity.

cryptocurrency-token-economies
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In normal circumstances, this power would go to waste, as there is nowhere to store it, and the solar panel installation is not one of the expensive and complicated ones that is linked to the national electricity grid. However, in our example, the houses in the street are networked together, so that excess energy produced by one home can be consumed by another home, where the residents may not be at work, or which does not have a solar panel. This is a really neat solution, you think, but it must be tedious for the over-producers to monitor their electricity production and transfers, and to invoice their neighbors periodically for the power they have used, as well as checking their bank accounts to ensure that payments have been made on time. 

Fortunately for the solar panel owners, this street has been chosen for an experiment in peer-to-peer energy trading, and all transactions are recorded on the Ethereum blockchain. A smart contract specifies the payment in Ether which is transferred in exchange for the electricity sold, and the transactions are made between the solar panels, rather than between the residents. There is no need to know your neighbors’ bank account details, or even their names, and no need to chase them for payment. Everything happens seamlessly and all you need is  an Ethereum wallet address in order to receive the payments.

OK, so some of the automotive use cases I described above sound quite futuristic, but in this case, a practical proof of concept has already taken place: the Microgrid project in Brooklyn.

The company behind it, LoEnergy, has since moved away from the idea of using Ethereum in favor of their own platform, Exergy, but the concept is the same. Just as devices that are connected to the internet now outnumber humans connected to the internet, so device-to-device cryptocurrency transactions will at some point outnumber those originated by humans.

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3. Media

Since the earliest days of the internet, traditional media companies have been wrestling with the question of how to make their business model continue to work in an entirely new and unfamiliar world. While there are still many people who prefer to buy a newspaper in its print version, most prefer to consume their news online from the same organizations, or from sources online that have sprung up after being enabled by internet technology: social media, blogs or digital-only publications. When newspapers, television and radio were the only available options, anyone who wanted to read an authoritative written piece that was more up-to-date than a book would turn to a newspaper because there were no other choices. The cover price of the paper, plus revenue earned from print advertising supported a business model that was centuries old and that has not changed much during those centuries.

The advent of the worldwide web broke this business model. Readers became accustomed to content that was supplied online being given away for free. It is also true to say that, apart from a few visionaries, most journalists and executives working in newspapers saw the new technology as a threat, rather than an opportunity. Most editors fought against what they saw as the enemy within their newsrooms, subjecting their content to a digital embargo until after the print edition had gone on sale, and in some cases vetoing reproduction on the website altogether. Many editors thought that the online edition of their paper should be a faithful reproduction of the printed version, and this failure to grasp the different opportunities that presented themselves made themselves feel even more beleaguered. They were fighting resistance on two fronts: Not only were their younger readers unused to paying for digital content, but their older and more established readership was, at least in the early days of the late nineties and very early 2000s, suspicious of giving their bank details or credit card number to any website. 

While media has been one of the sectors most disrupted by the arrival of the internet, it has also been one of the slowest to find a solution. How would tokens help? 

On the other hand, whilst the old media was quietly dying, a new breed of content producers was rising. Fashion bloggers soon became more influential than fashion magazines, in recent years usurping the star writers of glossy magazines from the coveted front row in fashion shows. Other content producers created video content: everything from political opinion, to technical tutorials to DIY guides. Mobile phones meant everyone now had a video camera, and platforms such as YouTube and Vimeo meant that previous unknowns now had millions of followers.

While media has been one of the sectors most disrupted by the arrival of the internet, it has also been one of the slowest to find a solution. How would tokens help? 

While many people are not prepared to pay for content, some are: and we can see this willingness in the writers and vloggers who are supported on a voluntary basis by programs such as Patreon, which allow consumers to contribute to their chosen creators. However, even Patreon is a paywall of a kind, and unless you are particularly dedicated to the work of a particular person, it remains a barrier. In the early days of crypto social media, an interesting phenomenon sprang up. Because money could be sent directly to a Bitcoin address, whether it was ten dollars, a few cents or even a fraction of a cent, some content creators began to provide their public Bitcoin address, either as a string or as a QR code on their websites, their YouTube page or their Twitter profile. People were happy to send tips (which, of course, appreciated dramatically in value over the years between 2012 and 2017) and tipbot browser extensions were created, allowing users to send Bitcoin, Dogecoin or various other currencies to social media addresses of their choice to reward useful content.

Perhaps it was this which sowed the seed of several startups, and gradually the idea of micropayments for tiny quantities of content began to catch on. Building some software into a browser so that you could keep some cryptocurrency in a general-purpose wallet and allow it to release a fraction of a cent’s worth of cryptocurrency in a steady stream while you read an interesting article or watched an entertaining video seemed to be an idea with genuine usability.

As a content creator, all you had to do was sign up, place some code on your page and if a consumer stumbled across your article or video, they could read it and pay paragraph-by-paragraph. It was the perfect frictionless way to enjoy good quality media, while knowing that in the background, the creator was being rewarded for your attention. Bitcoin was the original network chosen for this, but as transaction fees rose and micropayments became too expensive, startups such as SatoshiPay and Smoogs pivoted to other blockchains.

Since then, another solution has come along: the Brave browser, with its Basic Attention Token (BAT). Brave is a superb browser and, although word is now beginning to spread, should be more widely known. Co-created by Brendan Eich, who not only invented the JavaScript programming language but also co-founded the Mozilla Foundation, home of the Firefox browser, Brave hosts its own advertisements which readers can receive a small payment for watching. Brave also incorporates a reward system for content creators, where you can register to receive payments denominated in Basic Attention Token if readers consume your content using Brave. At the moment, no one is making a living from Brave, but it is early days and the fact that many people are receiving at least some small payments from this so-called attention token suggests that the idea of attention tokens is possibly an innovation worth watching.

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4. Gaming and Art

One of the precursors to cryptocurrencies were the forms of digital money that were used in games such as Second Life. While these were centralized and were issued and circulated very much at the discretion of the game manufacturers — if you were banned from Second Life, you lost your Linden dollars — it showed there was an appetite for a form of money to use in games that had at least some kind of nominal exchange rate with dollars, pounds, euros or yen. The growth of whole parallel economies in cyberspace even before Bitcoin was invented, was a sign that to blend the economy of a virtual world with that of the real world was to solve a problem that really existed.

How do we ensure that a digital item such as an artwork or a custom avatar cannot be copied and sold a thousand times over? The answer is to issue the item as a non-fungible token, or NFT. This is a special type of cryptocurrency token which exists as a one-off on a particular blockchain and maps a digital asset (such as an in-game accessory or an artwork) to an entry on the blockchain. This has been carried out on various blockchains, such as the RarePepe memes on the CounterParty network, but Ethereum lends itself well to this particular use case, and there are even special types of standard smart contract for this purpose, namely the ERC-721 contract.

Probably the most famous ERC-721 contract, at least at the time of writing, is the one that is used to create CryptoKitties, the game which took the crypto world by storm in 2017-2018 and attracted many users outside the hardcore crypto trading community. Just as real-world collectibles such as football cards or Pez are traded, so could these cute cartoon cats. To make the game even more appealing, once you had some specific kitties, you could breed them to create more, and even give them cool, marketable names. For a brief period, serious crypto traders poured into the game, as prices of these quirky collectors’ items soared.

The most expensive CryptoKitty sold for an astonishing $170,000 worth of Ether as the hype cycle kicked in. The game continues, although the prices are more sensible now: You can check the most recent Kitties sold on the Kitty Explorer website, which has all the historic prices and records a fascinating episode in cryptocurrency history. Despite the sudden craze bringing the whole Ethereum blockchain to a virtual standstill, CryptoKitties was a useful illustration of the type of thing one can do with NFTs. It is also worth mentioning here that for all its use of the Ethereum blockchain, CryptoKitties is not a decentralized project at all. While the buyer (or breeder) owns the token and can trade it, Dapper Labs, the company behind CryptoKitties, retain the intellectual property of the artwork.

The growth of whole parallel economies in cyberspace even before Bitcoin was invented, was a sign that to blend the economy of a virtual world with that of the real world was to solve a problem that really existed.

Where CryptoKitties trailblazed, other similar projects followed, and there were soon CryptoPunks, CryptoPuppies, and many others, including CryptoCountries. For some reason, the United Kingdom in CryptoCountries was bid up to $69,000 while the United States could only muster $10,000. Many of these collector games were cut-and-paste copies of the wildly successful CryptoKitties, but occasionally something came along that was of particular interest.

Decentraland is an interesting virtual reality project powered by the Ethereum blockchain, for example. Players can use Decentraland’s MANA token to buy plots of land within the game and build their own applications and experiences, which they are free to monetise. Unlike CryptoKitties, creators retain all the rights to their creations, and the project is decentralized.

The plots of land are represented by NFTs in the form of an ERC-721 token called simply LAND, and when the MANA token is exchanged for LAND, the MANA is burned. The focus of the game is on creativity as well as collecting: tutorials on the Decentraland website include instructions on how to place the NFT artwork you have bought or collected into a scene in the game.

While Decentraland is probably the most forward-looking blockchain project in its treatment of, and vision for, in-game NFTs (which are, after all, a specialized type of cryptocurrency), it seems that they have to wait for the rest of the gaming world to catch up with them. While Decentraland can get developers building applications on its platform to obey particular coding standards that mean that Decentraland NFTs can move smoothly between applications, the same does not apply (yet) to other games. 

As Decentraland explains on their blog, and as other cryptocurrency and blockchain writers have pointed out, the endgame for NFTs is for them to have a life of their own, independent of the game in which they were originally acquired. If your avatar has the perfect custom skin in one game, then why should your avatar in another game not be able to use it? If you buy a famous sword that was used to win a legendary battle that was streamed live on Twitch TV to tens of thousands of viewers, then provided that sword has an NFT representation, you should be able to sell that sword on an open crypto marketplace, not simply the marketplace aligned with the game in which you bought it. Similarly, if game makers were ultimately to agree to some development standard for the representation of NFTs, there is nothing to stop the sword turning up in another game entirely. Obviously, there are all kinds of commercial and technical reasons why this is not yet a reality, but it is useful to bear in mind the ultimate vision which NFT enthusiasts are working towards.

Gaming is not the only arena where the idea of NFTs is making inroads — the idea of registering a digital artwork as a smart contract so that it can be marked as unique and traded as such has been a recurring theme in crypto circles for some years. If you own a painting or other physical artwork, someone has to go to great lengths in order to forge a copy of it and demonstrate its provenance. Previously, digital artists faced the problem that their art could be easily reproduced: How do you prove if you send someone a high-resolution JPEG that you have not just sold 100 more of these to other art collectors? The Forever Rose is probably the most prominent crypto-artwork that has been sold, although Parisian street artist Pascal Boyart has been conducting some interesting experiments in tokenizing his street art — the first part of his “Daddy, What Is Money?” mural sold on the OpenSea marketplace for 25 ETH ($5000 at the time).

And these are only a few examples of how data and payments can be combined in some programmable way to perform certain tasks. 

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This is an excerpt from THE CRYPTOCURRENCY REVOLUTION by Rhian Lewis is ©2020 and is reproduced and adapted with permission from Kogan Page Ltd.

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