'Tokenomics' - a revolution in the content creation business?

For many economists the nature of money is still a source of great debate. Who creates it? Is it commercial banks or central banks? Are we creating too much or too little?

Due to the debasement of fiat currencies and rising inequality worldwide, supporters of cryptocurrencies believe the future of money lies outside of the traditional banking system and in decentralised finance, or DEFI. 

According to The Global Macro Investor (GMI), there are currently 150 million crypto users worldwide with that figure expected to rise to 1 billion over the next 3 - 4 years. GMI state that crypto is the fastest adoption of any technology in human history surpassing the internet in the late 1990’s and early 2000’s. With so many people entering the crypto space, prices are predicted to rise exponentially

The DEFI movement is evolving fast. One of the latest innovations is "creator coins"  which, similar to vouchers, points schemes or free miles, are digital tokens issued to customers as rewards by content creators. Spearheaded by companies such as Tilt, ALLIE, and Shank, the aim of these coins is to incentivise brand awareness and to create communities via the sharing of content. The coins are customisable digital assets that can be traded and exchanged for other tokens on decentralised networks called blockchains.

A blockchain is a decentralised database of computer systems and users that communicate and share data. The blockchain consists of everything from financial transactions, customer ID, to legal (smart) contracts. The exchanging of data or validation processes do not require banks or financial intermediaries. There are no centralised authorities such as a central bank who can manipulate the supply of tokens, or powerful social media companies who misuse customer data.

Take for example, a podcast or a video channel. Instead of relying on Youtube, Facebook or Linkedin to provide customer outreach, full marketing control and transparency is now with the content creator curtesy of Rally or the Ethereum blockchain. The video channel can observe the real number of views it receives on its platform while removing the middleman.

The content creator can also issue its own coins or tokens to its followers providing limited access to newsletters, new material, rare interviews, or merchandise. When fans make a purchase, share, like or subscribe, they receive additional tokens. This not only provides a source of funding for the channel but also an incentive for followers to continue to promote the brand while they profit from the buying and selling of the coins on decentralised exchanges. 

The higher demand for these coins, the higher its value. The higher the value, the more wealth it creates for the holder. And a higher value crucially gives greater purchasing power to buy more content at a relatively lower price. 

Unlike many cryptocurrencies such as Bitcoin which has very little use case, tokens can be exchanged for goods and services. So even as the value of a token appreciates, the incentive to sell is less. The same principal applies to traditional currencies such as the dollar or the Euro. Major currencies don’t tend to fluctuate in value when there is reason to hold them. Dollars buy things. Bitcoins don’t.

So companies issuing these tokens create wealth for themselves but also for the communities that support them. Across a whole range of different businesses in the economy such as start-ups, book publishers, video games, vloggers, and artists, the opportunities for growth could be a game changer. Due to their crowd-funding like nature, these digital assets are becoming known as  ‘community’ or ‘social’ tokens. They bring communities together to mutually share in the growth and success of new ideas and brands. 

I wonder how such a model could benefit the TV and Film industry in future. For state broadcasters, community tokens could offer an alternative route to funding, abandoning inefficient licence fees or government taxes. By engaging with the public via an incentivised business model, audiences could support local networks by consuming content in return for tokens. Audiences could then sell the tokens to make a profit or hold the tokens to access more content in future.

The benefits of a ’like and subscribe’ model could help secure commissions for a second or third season of a hit TV series, for instance. Many people believe that tokens or NTF's could revolutionise how companies do business across a wide range of sectors.

Governments too are now developing their own tokens called central bank digital currencies, or CBDC’s. No doubt they will create their own blockchains outside of Ethereum or Rally, but the same incentive structures would still exist.

Issuing CBDC’s to lower incomes, for example, as a part of an "award"-based system to encourage job seeking could be a major policy tool in future. While workers would lose their unemployment benefits, they receive an extra incentive to find work by receiving government tokens.

Likewise, central banks could choose to reward employers who retain staff during a downturn or provide essential skills training programmes. When the interest rate on traditional money (fiat) is low, central banks could offer higher rates to SME’s who exchange cash for CBDC’s at the central bank. This would not only support employment in the economy but also help small businesses.

In tackling private debt, governments could even encourage businesses and households to reduce their debt by offering higher yielding CBDC’s. The same could apply to incentivise reducing carbon emissions. 

There are so many fascinating ways that tokens could change how we live and how we use money in future. In 1942 Joseph Schumpeter, one of the great economists of the 20th century, called the dismantling of established conventions “Creative Disruption”.  These disruptive technologies have powered capitalism throughout the ages and catapulted humanity towards greater prosperity. The lightbulb, railroads, assembly lines, and the internet are just a few examples.

Scepticism regarding crypto is understandable and many will cling to old conventions in order to prevent change. History shows us, however, that technology often has different ideas.

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