The Transfer Of Value Into The Digital Space.

By Reuben Machinga

The transfer of value

The arrival of cryptocurrency has allowed us to transfer value into the digital space. To see how this has happened, we need to build a basic understanding of what value is, see how it has been distributed in the traditional economic system and, after that, explore how the arrival of cryptocurrency creates new opportunities for the transfer and distribution of value.

So, what is value? Value can be understood to be the worth of all the benefits and rights arising from ownership. Value can be utilitarian or it can come from the power to command other goods and services. It can also be derived from the money one can earn from voluntary exchange.

The Traditional Financial Markets

Let’s move our discussion on to money. When that word comes up, most of us immediately think of bank notes. Added to bank notes are bank deposits. In order not to get bogged down in monetary theory, let’s limit ourselves to these two.

Money, in the way we have understood it thus far, has been incredibly useful. With it, we have built a sophisticated economic system. A significant proportion of societies around the world own some form of property. It can be anything from small household items, all the way to the home itself. The traditional financial system’s benefits have also accrued to people with a lot of funds.

There is some property that is incredibly expensive to build or buy. Commercial real estate is a prime example of this. The cost of land, as well as the cost of construction is quite high. If one person cannot afford to go it alone, there is a traditional remedy. Two or more people may pool their resources and form a corporation to acquire land and build the property.

This is a very rudimentary explanation of how large, capital intensive projects have been undertaken. Let’s bring our minds to our earlier discussion of value. We said value could be understood to be the benefits and rights that arise from owning something. With that in mind, can we not say that our real estate investors are restricted by the traditional method?

My suggestion may not be as preposterous as it appears at first glance. When investors combine resources in the fashion described, they will most probably turn into shareholders. What rights and benefits do shareholders enjoy? Essentially, they can receive dividend payments or sell them. They can’t do much else with them.

Enter Cryptocurrency

With cryptocurrency, we can do so much more than what has been done before. Cryptocurrencies are much more sophisticated than the traditional money we’ve been accustomed to. Cryptos come in the form of tokens. As well as being highly divisible, tokens can represent just about anything.

This point is incredibly important. The divisibility of cryptocurrency means we can break into many small pieces claims, rights, and benefits of ownership. With our commercial real estate example in mind, we may refer to novel ideas of ‘The Security Token Thesis’ and ‘Traditional Asset Tokenization’ which were bequeathed unto us by Professor Stephen McKeon. His ideas are nothing short of genius.

Representing value in the form of tokens allows for many more people to chip in and raise funds to construct our imagined commercial property. Beyond that, this tokenization allows us to overcome the hurdles that arise with traditional representations of value.

Remember, our shareholders have two ways of benefiting from their co-ownership of this commercial property. They may either get paid dividends or they may sell their shares. What we hadn’t defined was whether the corporation they built publicly traded or not. If it’s not a publicly traded company, the market for their shares is incredibly shallow because it doesn’t have very many participants. This renders their shares relatively illiquid. Secondly, their corporation may or may not be legally obliged to pay out dividends. To see how this can pan out, imagine the plight Apple shareholders endured some time ago ( Rob Waugh, 19 March 2012).

Tokens allow for more ways of benefiting from ownership. Because they are bits of code in a computer system, we can imbue tokens with a lot of information. In theory, our tokens can both be a claim to owning the property we are discussing as well as being a claim on use. Legally speaking, token holders may have both ownership and scheduled possession of the building. This, theoretically, means our token holders can create a protocol for them to schedule common usage of the building they’ve financed.

Also, cryptocurrency tokens are more interoperable than traditional financial instruments. It isn’t custom to exchange company A’s stocks for company B’s corporate bonds but it is common to exchange Bitcoin for Ether. The interoperability of cryptocurrency tokens potentially deepens the markets for the tokens that our commercial real estate investors hold. They can more easily sell their tokens than their traditional counterparts sell their shares.

Of course, some sort of dividend or royalty payment schedule may be engineered into the token, much like the GMA token. (Please note that the GMA token does not confer the right of ownership of Sunrise Mine, or Goldchip Investments)

Even this imagination of what cryptocurrency can do in transferring value into the digital space is just scratching the surface. This is just the beginning and it’s impossible to tell what is going to be imagined and done in the future. We are going to see new models of economic activity sprout and flourish. Perhaps so new we can’t imagine them just yet.

Sources

dailymail.co.uk. (2012, March 19). Retrieved from Dailymail: http://www.dailymail.co.uk/sciencetech/article-2117046/Apple-pay-dividend-1995--2-95-share--announces-buyback-scheme-using-100-billion-cash-hoard.html

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