There is, I hope, a general principle behind this essay. Crypto tokens are an important part of the future. As I will explain, the universe of crypto tokens is very interesting indeed. But to use a token in this way is not easy, and not necessarily useful.
I have prepared four short blog posts, each with a different definition of “use”.
The first is about the most common use: buying stuff online. The second is about another common use: investing in a business (or making money by selling equity). The third is about using tokens on the blockchain as an alternative to stocks or shares (if you own some crypto tokens, you can actually trade them as if they were stocks or shares). The fourth is about using tokens in another way that I don’t think people have really thought about yet: as virtual currencies.
A bitcoin is a kind of token. It’s not money, because it’s not useful as money. But it’s a token, and you can use it just like a token. To make things easier to understand, let’s talk about tokens instead of bitcoins.
There are two ways to think about tokens: how to use them and what they are for. Tokens often have two or more uses. The most obvious is for washing clothes: you put in water, soap and bleach, and out comes clean clothes.
You can also use a token like money: to buy things with it, or send them somewhere else. But there are many other ways you can think of using a token. You can use tokens in games and simulations, as decoration (like trading cards) or as the material for art (like stamps).
Tokens can do all these different things because they’re just data objects; they’re not inherently any one thing. They don’t have to be that way; but since data objects are the only thing computers understand now, we tend to assume that that’s how everything works.
Cryto tokens are a new kind of cryptocurrency. They are essentially like bitcoin, only they don’t have bitcoin’s long history of security problems.
They are based on a somewhat-original idea: The fundamental unit of cryto is not just bitcoins; it is also the block chain, the vast ledger where every transaction is recorded. If you want to trade with someone else who has cryto tokens, you need to exchange those tokens for dollars or euros or pounds. But not everyone has dollars or euros or pounds on hand. So what if instead of exchanging coins, you could use some new kind of token that would allow you to do the same thing but without having to deal with actual coins? That’s what I call “sandbox cryto” — tokens that exist only within a virtual environment and can be used freely in that environment.
When you write an article about how to use sandbox cryto, your visitors will each get their own token and can then buy this article, or any other article in your blog, with the tokens they get for free by visiting your site.
A token is a kind of thing you can give. It is like a coupon or a key.
Suppose you want to give someone else a gift, and you don’t know what to get them. You could go to a store, buy some object that the person likes, and give it to them. But if you do that, then every time they have something they want, they have to go back to the store. That would be inconvenient for them and for you. Or maybe you have something that belongs to someone else, but you don’t know where it is: maybe it’s hidden in the attic or lost in the basement or frozen in Antarctica.
You could give them your token instead. The token is an encrypted version of your secret item; no one else can use it except the person who has your secret item. Then when they come across the token in the future, they will know that it is their own secret item. And if they don’t have your secret item now, they will know how to find it: they can just use the token as a key to unlock their secret item from their private key-wallet.
In this way your token lets them get one of your things without going back to you to ask for it—and helps
Crypto tokens have enabled a new and exciting way to hold value. They are simple in form, and yet they can offer economies of scale that make them useful for trading and even speculation.
Most people who start with crypto tokens are excited by the idea that they can offer some kind of privacy, but they miss the point. The technology was only developed so that it could be used to hold value. In fact, as crypto tokens gain popularity, it becomes easier to see what a small part privacy plays in their usefulness.
Privacy is not the point of crypto tokens; instead, it is a byproduct of their use—a rare benefit that does not overshadow their other uses. You can’t use crypto tokens for anything unless you can get them into circulation—you can’t buy anything with them unless someone accepts them as payment.
As long as there are only a few users accepting crypto tokens as payment, there will still be negligible privacy. But once enough people start using them in transactions, then the size of the market for smaller transactions will grow very quickly—all at no cost to users’ privacy. As transactions become more common, their size will also increase rapidly.
The popularity of cryptocurrency has put an end to many myths about money that had been held for centuries
Smart people tend to underestimate the difficulty of what they are doing. A good example is cryptography. It sounds easy, but people who have tried it say that it is actually very hard. If you look at the history of cryptography, the most famous cryptographer was a guy named Diffie who was trying to build a system that would let him send his girlfriend a coded message without anyone listening in. He spent several years working on it, and then he gave up.
He realized that even though he had convinced himself of the beauty of his idea, no one else would ever believe him if he told them about it. He was not at all sure that anybody would ever use his new system, so he didn’t bother to teach anyone how to use it.
Coinbase is a good example of this. Coinbase is a Bitcoin wallet that works on both the web and your phone. It’s a wallet where you can buy and sell Bitcoin, and it’s also a way to use Bitcoin in apps, or as payment for goods and services. The thing about Coinbase is that it’s probably the easiest way for most people to get started with Bitcoin. But what does “easy” mean? Easy for whom?
There are lots of ways to use Bitcoin (and other cryptocurrencies) that are less easy than Coinbase. One is to buy the Bitcoins yourself, at one of the many places where they are sold. For example, you can find them on MtGox or Bitstamp or BTC-e or BtcChina