The Unique Property
The Digital Revolution - Part 3 Tokenisation
Creating tokens has taken the digital world by storm. I can
start by giving a few definitions of digital tokens, but I'm
sure the definitions by example that come later will be much
more useful. OK, here goes.
First, let's make it clear that we are talking about something
that is as secure as we can make it these days. Tokenised data
is undecipherable and irreversible. Because there is no
mathematical relationship between the token and its original
item, tokens cannot be returned to their original form without
the presence of additional, separately stored data. As a result,
a breach will not compromise the original data.
Second, let's clarify what they are. Tokens have no value on
their own—they are only useful because they represent something
else. A good analogy is a poker chip. Instead of filling a table
with cash (which can be easily lost or stolen), players use
chips as placeholders. However, the chips can’t be used as
money, even if they're stolen. They must first be exchanged for
their representative value.
And how do you use these tokens? Now that's where things start
to get interesting. Most blockchains require that if you wish to
use them, you must use their own form of currency. You pay your
usual fiat currency, £ or $, which is then exchanged for the
tokens that the blockchain uses, and then you can use those
tokens to pay for the services or articles that you want.
Over the past year one form of token has become very high
profile. I refer to NFTs, or Non Fungible Tokens. I'm sure
you've heard of them, but maybe you've wondered what the heck
they really are. Let me try to explain.
First, let's get clear what Non Fungible means. Basically it is
something that is unique and therefore can't be exchanged for
anything else. For example, the money in your pocket can be
exchanged for other money. A five euro note is no different from
any other five euro note. One can be exchanged for another. A
painting by Raphael cant be exchanged for anything else, it is
an individual item which has a value because it is a painting by
a very famous painter.
In other words a bitcoin can be exchanged for another bitcoin,
after all it can be used as money just like any other bitcoin.
An NFT cannot be exchanged for anything else, it is an
individual item, and that means there is only one of its kind.
One of the great things about NFTs is that they give artists a
very simple way of monetising their goods on the web. Before
such things existed there was no real way of copyrighting your
work on the web. If you wrote a story, or uploaded a photo or an
original painting, anyone could copy the file and use it as they
With an NFT you can still do that, but there is a difference in
the way people can consume things. For instance, let us assume
you have painted a picture, and exhibited it. It is now hanging
in a gallery. Anyone can photograph it and print that file, and
then hang the copy on their living room wall. If it gets bought
by a museum, the original can be viewed by the paying public. In
short, there can be copies (called prints), but there is only
one Mona Lisa, or one Venus de Milo.
We are living in a digital world. How do you create a digital
file that you want to be unique? And how do you monetise it? It
is almost impossible to upload it to the web and still claim it
as an original. Someone can, of course, buy the physical copy,
but in a digital world how do you copyright a digital file? The
answer is, you register it (mint it) as an NFT. If someone then
buys the NFT, that is regarded as the original. Copies may still
be made, but they will have a value similar to a print of a
painting rather than the original.
Recently there have been some interesting twists to this new
First, with the new online games you need to buy tokens in order
to play. But that isn't the end of their use. Nowadays you can
buy an NFT which is an avatar that stands for yourself in the
game. Think of the old fashioned games where you had a red
counter, or a blue counter, which you moved round the board.
Each player had a different coloured counter. In the digital
world, instead of that, you buy an avatar which you then program
with some attributes which are individually yours, including a
picture of you.
There are also set-ups that allow you to buy digital real
estate, which can be your digital home, you can even put a shop
on your new-found high street plot, and sell your wares from
that digital shop. You could even buy up a whole digital street
and rent out blocks.
You can take this pretty well as far as you like. If your High
Street becomes successful what is to stop you tokenising that
street, and selling off tokens? You have now created the
equivalent of a company. With a physical company you can go
public and sell shares. With a digital asset you can tokenise it
and sell the tokens. Those NFTs are the equivalent of an
old fashioned share certificate. That will now give you some
more capital to play with, and the tokens will bring in the
equivalent of a dividend based on the rent the High Street is
receiving from tenants.
Isn't this fun!
Already footballers and basketball players are tokenising their
boots and shirts. You can even split up the item you are
tokenising and sell individual parts of these items. Own a
hundredth part of a famous player's shirt. Daft, but even more
fun, especially for the player who is making rather a lot of
Live in a nice house? Tokenise it and sell tokens representing a
share of the house. When you sell the property, the owners of
those tokens get a share of the sale price. But perhaps you had
better keep 51% of the tokens for yourself. On the other hand,
what a great way to start a property business.
Hold on. I think I'll keep that idea to myself.
Next week I will pursue some of these ideas further.