Purpose Driven Tokens: Solving the world’s problems with crypto – 6 leading examples and lessons learned
The meme “Bitcoin fixes everything” was never intended to be taken seriously. But many people believe that the wider set of blockchain applications (also known as Web3) can fix – if not everything – some fairly major problems that have so far proved intractable.
The hyper-evolution of Web3
Web3 has evolved fast. In the early days of blockchain innovation, the conversation focused almost exclusively on price movements among the main cryptocurrencies. When smart contracts were added to the mix, the conversation moved to the potential of decentralized finance (DeFi).
Then came NFTs, adding digital property to digital currency, which created the potential for play-to-earn gaming (P2E). Combine P2E with VR, and you have the possibility of self-sustaining metaverse-based economies.
But it’s arguable that the most interesting applications of blockchain are those that have a direct impact on what we might still refer to as the ‘real world’, or physical reality. Compared to other applications, these are still largely unexplored and under-discussed.
Definition: Purpose-driven tokens
The purpose of many cryptographic tokens is simply to appreciate in value. This value is created by a combination of utility, meme power, and underlying cashflows.
The ultimate objective of a purpose-driven token goes beyond the individual to further the achievement of an external good, bringing benefit to a large number of people.
Shermin Voshmgir, who devotes a chapter of her book Token Economy to the topic, gives the following definition:
“Purpose-driven tokens incentivize individual behavior to contribute to a collective goal.”
The idea of aligning individual incentives with a public good is itself not new. Systems such as “cap and trade” create an economic rationale for profit-seeking enterprises to limit carbon emissions, for instance.
A token-based solution, however, is a way of implementing the idea with all the unique benefits afforded by blockchain technology: speed, security, and minimal bureaucracy (or decentralization, to use the Web3 term).
Real-life applications of purpose-driven tokens
We don’t have to theorize excessively about the form that purpose-driven tokens might take, as there are already a good number of examples out there. Let’s look at a few of them.
Sean Carey (one of the co-founders of Napster) had a vision in 2013 for a wireless internet network built on the same “two-sided market” principles as Airbnb. What problem was this supposed to solve exactly?
Despite the fact that 75 billion IoT devices are due to come online by 2025, connecting so many devices to standard wireless networks has turned out to be prohibitively expensive for IoT companies. Furthermore, setting up an affordable, low-bandwidth network to serve IoT devices exclusively did not make economic sense for a potential infrastructure provider.
The Helium network allows individuals (as in private citizens like you and me) to generate hotspots using special equipment and receive HNT tokens as a reward. The more data is transferred, the more tokens you receive. Other members of the network are also rewarded for validating that your coverage is genuine. Users of the wireless network (e.g. IoT companies) purchase and ‘burn’ HNT tokens to gain access to the network.
As of the time of writing, the Helium network has grown to 766,435 hotspots, and there are 117,730,230 HNT in circulation. The underlying company (which has changed its name to Nova Labs) is valued at $1.2bn. Quite good going, for an idea many would have dismissed as unworkable.
According to its mission statement, the Korean startup Medibloc aims to improve healthcare access by “accelerating the world’s shift to private information decentralization”. Why do we need decentralization of private medical data?
Private medical data is valuable to fraudsters, and an individual’s records can fetch up to $250 on the black market (compared to just $5 for debit card details). Combatting this growing threat by making the information hard to get hold of can also make it hard for both patients and healthcare providers to access the information when it is most needed. This leaves both groups in between a rock and a hard place.
Medibloc makes it possible for patients to retain control of their data, which is stored securely on-chain and released to providers (e.g. for routine medical treatment) only with their approval. How does it obtain the data? By rewarding both patients and providers who contribute information with MED tokens, which can then be spent again when data is required.
MED tokens obviously have value to medical providers (who are constantly in need of patient data), and can also be used by patients to pay for medicine and procedures. The scheme is globally interoperable, so there is no need to fill out Kafkaesque intake forms either at home or abroad. A neat solution to a genuine problem.
There are many apps that gamify fitness. For example, Zombies, Run! turns running into a literal game, giving missions and providing the sound of screaming zombies to incentivize the runner to increase speed.
With Sweatcoin, the user mines a token (i.e. receives it in their wallet) with every 1,000 steps walked. The app also makes use of standard psychological levers such as competition between users, and offers a reward of 5 Sweatcoins for referrals.
What can you do with the coins? Sweatcoins can be redeemed for daily discounts and trials, and if a large amount has been accumulated (e.g. 20k), users can actually buy products with them, such as an iPhone or Samsung TV, or else convert them to fiat currency.
The current iteration is not a genuine crypto-asset, but the eventual vision is to move the system on-chain, so that Sweatcoins can be traded for other tokens. The revenue model is dependent on 3rd parties, and is clearly still in the process of being worked out. It is an interesting example of the blockchain model being simulated to create the effects of a purpose-driven token.
It also contrasts favorably with a Web2 equivalent Gympact, which launched an app that rewarded and fined users according to their workout progress. It eventually ran into legal troubles for allegedly failing to honor its promises, showing that it may have been an idea that required the right technology to make it workable.
Incentivizing investment in green energy is an obvious candidate for the purpose-driven token model.
Describing itself as a ‘peer-to-peer solar leasing platform’, the Sun Exchange project scouts out institutions with high energy consumption and empty roof spaces (e.g. schools). It then crowd-sources the investment capital to buy and lease out solar cells to the institutions in question, giving the investors a share of the subsequent revenues.
The blockchain substrate allows individuals around the globe to invest and receive dividends easily and securely, and the project sustains itself by taking a cut from sales of solar panels and subsequent leasing streams.
40 crowdsales later, upwards of 1 million solar cells have been installed (producing 5.2 GWh of energy), and Sun Exchange’s investors span 180 countries (which is the majority of countries).
The less successful SolarCoin project, by comparison, followed a less grounded economic model. It awarded tokens for free to solar energy producers on the basis that the token would appreciate in value over time and hence eliminate the costs of production entirely. Today, SolarCoin is, unfortunately, worth almost nothing.
We are used to the term ‘bank’ being used in a recycling context, but here it is not a metaphor. Instead of allocating capital from lenders to borrowers, Plastic Bank aims to change the perception of plastic from harmful waste to a valuable commodity, with the potential to provide economic opportunities in developing nations.
Plastic Bank helps to prevent plastic from reaching the ocean by paying tokens (powered by IBM Blockchain technology) to plastic collectors in coastal areas. The tokens are redeemable via the Plastic Bank app for necessities such as groceries and cooking fuel. No bank account is needed, and the ecosystem works 24/7.
The collected plastic, meanwhile, is converted to an eco-friendly feedstock known as Social PlasticTM, which is then sold to businesses looking to improve their eco-footprint, thus ‘closing the plastic circle’. Plastic Bank also draws revenues from donations (both businesses and individuals), allowing an indirect means of supporting the mission to insulate the ocean and strengthen emerging economies.
The website claims that the ecosystem has so far collected over 48.5 million kg of ocean-bound plastic, and comprises over 20,000 members across over 500 communities. Preventing pollution while providing jobs and promoting financial inclusion? Not a bad day’s work.
While not as existential a problem as the threat of climate change, the issue of data privacy is an existential challenge for the global economy, given the centrality of advertising revenue to the modern-day internet economy.
While an individual user’s discomfort in having their data sold and used to manipulate them is understandable, simply blocking ads and locking down user data is not a desirable solution without providing an alternative way to allow advertisers to reach potential customers in an effective manner.
This is precisely what the Brave browser achieves – with the help of tokens. Users can choose to have an ad-free browsing experience, or else can opt-in to receive ads. Those who do opt-in are rewarded with the BAT currency.
BAT holders as a group receive 70% of the revenue paid to Brave by advertisers, who in return get the opportunity to market to a consenting, and hence likely more engaged, audience. All without the need for subterfuge and dark arts.
This is another example of an idea that would be great in theory and impractical in reality – but for the power of cryptographic tokenization.
Designing purpose-driven systems
While the companies above show that Purpose-Driven Tokens are more than just an academic concept, designing a mini economy is hard. There seem to be two types of problems to avoid.
Firm commercial basis
Despite much evidence to the contrary (including the example of Bitcoin itself) cryptocurrency is not an infallible method to create value out of thin air.
This means that it is unwise to build a system that makes no commercial sense to any or all of the participants. I already mentioned an example above of Solar Coin, an investment that so far has proven an unintentional – and unsuccessful – Ponzi scheme.
Other examples of failed eco-friendly coins are less obviously suspect. An example would be the Earth Dollar, which is ‘backed’ by the natural assets of indigenous people and is claimed by its founder to provide a means of sharing natural wealth across the world population using coins.
Real Estate backed tokens are not an impossible concept, but in order to believe in the value of Earth Dollar the investor would need to be able to envisage the possibility of foreclosure on indigenous-owned assets by the government, which seems unlikely.
In P2E gaming, a good rule of thumb is that if a game doesn’t work without tokens, it won’t work with them. This is probably a good guide for designing Purpose-Driven token schemes as well.
Watertight Game Theory
While token systems are essentially games with real-world value at stake, it is important to design systems that cannot be ‘gamed’ in such a way that the ultimate purpose is defeated.
The social media site Steemit is an example of a system that apparently makes good sense but has been dogged by unintended consequences, owing to naive assumptions about how its users would respond to incentives.
Steemit used various tokens to reward content creators and curators (those who like, upvote posts), including ‘Steem Power’ tokens that gave the holder influence on the network itself. The latter was supposed to be based on one’s reputation, but making it possible to buy the token gave large amounts of power to a small number of individuals.
Numerous other similar issues have come to the surface that allows exploitation and manipulation, and furthermore, encourage undesirable content such as clickbait and heavy bot activity (e.g. bots upvoting each other’s posts).
With Steemit, the red flag is the number of token varieties, which makes the system too complex to model accurately when human behaviour is thrown into the mix. The famous principle ascribed to Leonardo da Vinci tells us that complexity does not equal sophistication, and we could add that it may well lead to ungovernable chaos.
Conclusion: Modest goals, Simple rules
The lesson from the above appears to be that when it comes to building a successful Purpose-Driven Token ecosystem:
- Having a laudable purpose – such as ending poverty and hunger – is not enough.
- The grander the vision (e.g. world peace in our time), the less achievable it is likely to be. It must also have a solid commercial rationale.
- Minimizing complexity in the system itself will lead to fewer unexpected loopholes for opportunists.
The above amounts to common sense, but as Emerson pointed out: “Common sense is as rare as genius.”