token economy

There is a widespread misconception that Bitcoin and tokens that have derived from similar technologies are currencies comparable to fiat currencies. Here we will point out why Bitcoin and other crypto tokens are not currencies in the traditional sense, but rather a new asset class and an operating system for new type of economy.

A token economy is a system of contingency management based on the systematic reinforcement of target behaviour. The reinforcers are symbols or tokens that can be exchanged for other reinforcers.  A token economy is based on the principles of operant conditioning and behavioural economics and can be situated within applied behaviour analysis.

The primary goal of a token economy is to increase desirable behaviour and decrease undesirable behaviour. Often token economies are used in institutional settings (such as psychiatric hospitals or correctional facilities) to manage the behaviour of individuals who may be aggressive or unpredictable. However, the larger goal of token economies is to teach appropriate behaviour and social skills that can be used in one’s natural environment.

Advantages of token economies are that behaviours can be rewarded immediately, rewards are the same for all members of a group, use of punishment (response cost) is less restrictive than other forms of punishment, and individuals can learn skills related to planning for the future. Disadvantages include considerable cost, effort, and extensive staff training and management. Some professionals find token economies to be time-consuming and impractical. Risks involved in token economies are similar to those in other forms of behaviour modification. Staff members implementing the therapy may intentionally or unintentionally neglect the rights of individuals receiving treatment. Token economies should never deprive individuals of their basic needs, such as sufficient food, comfortable bedding, or reasonable opportunities for leisure. If staff members are inadequately trained or there is a shortage of staff, desirable behaviours may not be rewarded or undesirable behaviours may be inadvertently rewarded, resulting in an increase of negative behaviour. Controversy exists regarding placing individuals in treatment against their will (such as in a psychiatric hospital), and deciding which behaviours should be considered desirable and which should be considered undesirable.

Future of currency

Several leading experts point out that the current monetary system is bound to undergo significant changes in the years to come because it is compromised by issues such as inflation, the illicit economy and counterfeiting, to name a few. The current monetary system might actually be a hindrance to people, countries, and governments to work together more optimally than they do today. The monetary system of the future does not depend upon politicians or bankers but will be managed by communities and lending platforms. 

A Cryptocurrency is a digital currency that is created and managed through the use of advanced encryption techniques known as cryptography. Cryptocurrency made the leap from being an academic concept to (virtual) reality with the creation of Bitcoin in 2009. Some economic analysts predict a big change in crypto is forthcoming as institutional money enters the market. Moreover, there is the possibility that crypto will be floated on the NASDAQ (National Association of Securities Dealers Automated Quotations), which would further add credibility to blockchain and its uses as an alternative to conventional currencies.

Bitcoin is one of the most important innovations of our time – it will transform the way we do business.  While the world was busy panicking about the global financial crisis, a computer programmer called Satoshi Nakamoto posted a message on an out-of-the-way mailing list. ‘I’ve been working on a new electronic cash system,’ he said. ‘It might make sense to get some just in case it catches on.’ Nobody seemed to care. But what he had programmed would become the world’s most famous alternative currency: Bitcoin. Economists, anarchists, speculators, computer coders, libertarians, criminals and entrepreneurs were inspired across the world. Early adopters would make a return two million times larger than their investment. Now it seems that Bitcoin will do to banking and finance what email did to the postal service and what the internet did to publishing: destroy old monopolies and create opportunities for the masses. Some even suggest that the technology behind Bitcoin will usurp our Western systems of representative democracy. Some cryptocurrencies, such as Litecoin or Dogecoin, fulfil the same purpose as bitcoin – building a new digital currency – with tweaks to some of the details (making transactions faster, for instance, or ensuring a basic level of inflation). Others, such as Ethereum or Bat, take the same principle but apply it to a specific purpose: cloud computing or digital advertising in the case of those two.

Token economics is gaining popularity. Tokens are a representation of a particular asset or utility that usually resides on top of a blockchain. They are less complex than cryptocurrencies such as bitcoin or ethereum, because you only need to slightly modify an open-sourced code instead of creating a blockchain from scratch. More importantly, tokens do not have to be thought of as “currencies” to possess an enormous amount of value: Any real-world asset—a painting, a house, a diamond—can be tokenized and traded with low transaction fees and in a very short amount of time.

Programmable tokens may end up driving programmable economies where societies and companies can design their own tokens and place whatever exchange value they would like on them. That way, marketplace value is only captured by those who create value for the marketplace. In a way, we’re returning to the past. The global financial system started with bartering, and we are now adopting a similar structure on a digitized platform. These tokens, like the rice, cowries and cigarettes of the past, do not need to have value assigned by some centralized, external entity: They can just be used in defined, specific, distinct forms of trade within a community of peers. Everything does not have to have a price tag on it to have value—there are many other skills, goods, and services we can provide that are of equal value to money, if not more. We need to give the word “value” a whole other set of meanings. Our relationship to money is broken. Token economics could fix it. 

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