What Is Tokenization And Is It Right For Your Venture

NTE 15 | Tokenization

 

As the world moves towards the digital space, we have seen a number of processes that are slowly transforming not only the daily personal lives of each individual but businesses as well. One of these emerging technologies is tokenization. For such a current hot topic, there are still a lot of confusion about how it works. Tracy and Monika get right down to it and tell you what tokenization is all about and whether it is right for your venture. Giving analogies and stories, they provide simplified explanations of what goes under it – from whether or not you need blockchain for it, to investing and cash back rewards. They also tackle its relation to crowdfunding and ICO.

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What Is Tokenization And Is It Right For Your Venture

NTE 15 | Tokenization
Blockchain 101: Fundamentals of a New Economy

We’re going to talk about tokenization which is such a hot topic. There’s also a lot of confusion about how it works. Monika has such a great way of explaining how it works for everything. If you haven’t read her book, she’s got a book called Blockchain 101. What I love about it is you’re like, “I had to figure out a way to explain to my cousins who think that what I do is a scam.” It’s exactly what we’re working on.

I’m so tired of having this question, “What is that stuff you’re doing? Should we even ask?” I was like, “Of all people that should ask, the regular crowd needs to know.” I was stumped every time. It didn’t work until I finally sat down and was like, “Just think analogies. Glass mailboxes. Instagram for PDFs.”

If you’re new to the show, we just want to explain to you that it’s what we are doing here. We’re giving you analogies and stories. We’re going to give you both. We’re interviewing people and we’re also telling some stories about things we’ve come across or heard. In that way, you have a vision of what this looks like in action.

This isn’t just a deep technical podcast because there are enough of those. If you want to dive into that stuff and Hashgraphs and all that, go for it. That’s for specific people. Me and my nerd friends do that stuff. I understand most people.

I thought I was a nerd, but I still find terms that I’m like, “I have to Google that yet again.” I still don’t understand it and Google didn’t explain it well enough. Let’s talk about tokenization because that’s what we’re here for. Let’s start with your bicycle skateboard analogy.

That came up because right before this, you were telling me, “I want to tokenize my business.” You were like, “It’s all totally compliant. It works.” I was like, “Yes, but also no. It depends.” If you were to tokenize, that means cut it into little pieces of equities and say, “People can buy a piece of this. It’s going to make money hopefully,” but you can’t say, “It will make money.” Don’t say that. You make it available to people. That’s something that accredited investors, people with significant amounts of extra money who therefore, according to the government, can withstand that risk. They are allowed to go do that. They’re allowed to say, “Tracy, great podcast. Your podcast is the future or whatever. Here’s $100,000 because I have extra and if I lose it, it’s not a big deal.” There were folks who have been able to do that for a long time. Venture capital, Angel investment, and all that stuff are available. You don’t need a token model, you don’t need any blockchain to do it. It’s been happening for decades. If you tokenize it, then they would have a digital record that’s more specific than what would be drawn up by your lawyers with them anyway, and that’s great. People can also then see that and it would be easier to reference. There are maybe their tax burdens or the way that they’re able to shelter their taxes. All those things would be more transparent.

The first wave of the internet was about talking to the whole world. The second is about value. Click To Tweet

I want to clarify that a little bit. We’re going to be featuring them as we go up, but I have a couple of interviews that are coming up in the future. We’re going to be talking about people who have set this up this way because they wanted to put metrics and funding stages within their contract or their equity buying. They built in a smart contract essentially to do that. That’s yet another reason why they’re going blockchain tokenization in the process of using already accredited investors.

All of those things still can be done without the blockchain. It’s like adding bells and whistles to your bicycle. You’ll still be able to get from point A to point B. Now you got streamers on your handlebars that are pretty. Not to say the blockchain is irrelevant, it’s a better bicycle. It looks better, it works better. You can let people know that you’re coming and use your bell or whatever. You still can get over the line and get your deals done. People have been getting funding for their businesses for a long time from accredited investors that way. This is where tokenizing is something that has to do with a risky investment like a business rather than an unrisky investment like a piece of property. That also was built by bad lending practices. It was a business problem that had to do more things at lending than with actual inflation of value inherently.

If you were going to open this up to unaccredited investors, average people, you and me, our friends, our family, my cousins, the people that need to read that book, all those folks that are going to benefit from tokenization, to use a blockchain in that deal is a lot more useful to you. You don’t need to then go get a lawyer to chase down what happened to those contracts. You don’t need to go invest further capital and tracking and tracing what happened. Things are very transparent and therefore it’s democratizing legal and contractual evidence and action. When you have it in a smart contract that was already set up once by a legal entity, they figured it out. They put it all into a smart contract and when you signed it, it becomes automated. Enforcement becomes automated. Milestones can be automated. Those are things that matter a lot to people that don’t have $100,000 to lose or $20,000 to throw at their lawyer just to figure out what’s going on with this thing. When the increments are smaller and people are trying to build wealth using a smaller amount to begin with, that automation is very powerful. It’s why I call it more of a skateboard than a bicycle. The bicycle gets accredited investors from point A to point B, blockchain or not.

If you’re talking about a blockchain tokenized solution, it’s a completely different way of getting there because it’s for the average individual investor and it automates those things. Some of those investment opportunities aren’t necessarily available to unaccredited investors on the large scale just yet. That’s because technology has preceded regulation in some sense with blockchain. There are more opportunities for people to use the internet and get their money to work for them. That’s a new thing. The first wave of the internet was about talking to the whole world. What’s going on in Nigeria? I didn’t know. How can we democratize the news? How can we get more voices in what’s happening real time? The email started us there and social got us there. That’s all that happened. The first wave of the internet is communication. This second wave of the internet is about money and value and soon it will be, “How do I pay that person in Nigeria? How do I capture the money off of the return in that banana farm in Haiti?” Not that everything is going to be post colonialism all over again, but when we see more people able to be a part of more and more deals, regulation is now going, “We’d never even thought of this because there’s never been a vehicle for it.”

For this period of time, because there are a lot of laws around how people can invest and what they can invest in based on their income because that’s how much risk they can take, those laws are being readjusted and reconsidered. Technology is now enabling people to do things, whether it’s legal or not. They can block their IP addresses. They can do all kinds of things to get themselves into deals. We want to see the law in every country address this and adjust to this to see that more people in deals are a good thing within reason, with the spirit of the law being don’t just open up these markets so someone with a bad idea can swindle a lot of money out of a lot of people that aren’t very savvy. If we can keep with that business and that spirit, we’re going to get a lot further in tokenization.

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Tokenization: Tokenization replaces crowdfunding with a much better vehicle for intimacy and growth for a business.

 

Let’s talk about some ways that tokenization works. When you’re talking about within the consumer base that you have or the shoppers that you have or within an entity or a structure or a venture, that’s doable and fairly easy to do.

It’s already happening without the blockchain. What about your cashback rewards on your credit card? It’s actual money. It’s in fiat, which is government-backed money. It’s not in crypto, but it doesn’t matter, it’s money. It’s something that you can use. It points to money. That’s what a token could be. That’s where blockchain could come in and make that tokenized in a way that people could track more openly. Some people might say, “Why do you need that?” It could be considered bells and whistles on a bicycle that works fine. When you’re talking about new technology, you want to start with where it’s already happened and then the new tweaks. Everything starts out as a new bell and whistle. If somebody walked into a medical office with a computer that could automate something, they will ask, “Are you a medical company or a computer company?” Computing and medicine go hand in hand. Nobody would ever force that distinction. Blockchain and cashback rewards and the internet of money are going to go hand in hand eventually. Right now, we see how we don’t need it in everything, but as slowly as it continues, it will be needed in everything. Somebody could have once upon a time said the Associated Press didn’t need Twitter.

When that plane went down in the Hudson River because the pilot was a veteran who knew how to land this plane or just save everybody’s life and it was incredible, the first picture that hit the internet about it was from Twitter. It was from somebody on a ferry driving to Staten Island to Brooklyn or to Manhattan. They saw it and they took a picture and they posted it. That was before the AP could get there. Once upon a time, people said, “You didn’t need all this social stuff. What’s that about?” Now it’s eclipsing. We’re going to see that with blockchain more and more, too. We can see an example – cashback rewards on your credit card, turn that into money, use it somewhere else, do with it what you like. Give it to your friend or buy an airline ticket with it. We’re going to see blockchain playing a bigger role in those things. That model is becoming obvious to people. You have a podcast. Maybe you don’t have a credit card amount that you can give people 2% back, but you can probably give them something else.

Can you tokenize your podcast and give listeners rewards of some kind? Yeah, but can you do that with or without the blockchain? You can. There are some of those things that are of interest to people. Will blockchain make it simple? Yeah, because then you could bill out rewards in any currency because we have a worldwide audience. Most people don’t realize that, but almost all the podcasts have listenership all over. When I started my first podcast on 3D printing, I was shocked to find out how many listeners I had in South Africa and Brazil. It’s a gigantic community in both places. I was like, “What’s going on here and why?” We started to communicate with some of our listeners to find out that they were like, “There is nothing here for us. There’s no training, there’s no learning, there’s nothing that we can get our podcasts. We have to listen in English, but no problem.” That was an a-ha to me about how international communication had become.

Soon it will be international finance. Soon it’s going to be, “I didn’t know I could invest in this. I not only love it and I see that it’s growing and the listenership has gotten bigger. Send me your investment packet. I’d love to invest $5 in it. I want to get my cashback rewards for being a listener.” We are a hair’s breadth away from that being a reality. You’ve got a great use case for people that are already internal to your system. If you took that as a public offering, you would have to go through a lot of securities offering channels. It could be difficult to garner unaccredited investors, why even go for accredited anyway with tokenizing a podcast? That’s just seeking venture capital money.

Someone with a really bad idea can swindle a lot of money out of a lot of people. Click To Tweet

The way that I looked at it and was an interesting idea because I’d been covering for quite some time in my column equity crowdfunding and all the shifts in the rules to being equity crowdfunding. I haven’t found anyone that I could write about that had a very quick and successful equity crowdfunding round. It takes forever and it’s hard. Trying to find enough people with the amount of money they can invest because they’re unaccredited means that you spend your entire year on the road trying to pitch people who may or may not be interested or able. I looked at that and I go, “Why would I do that?”

I’ve got 150 shows on my platform right now and I will have likely a thousand at the end of 2019. If I raised small amounts of money from people who are already passionate about our business, it’s an easier sell. It’s a question of, “Do you have the funds and are you interested in being part of our venture and being a more intimate part of it?” That’s an easier talk, that’s an easier sell. When I looked at it, I was like, “This tokenization replaces crowdfunding with a much better vehicle for intimacy and growth for business as well as for making smarter investment decisions.” If you’re already a part of an organization or you’re already a part of this, you want to see them grow. Why wouldn’t you want to have a little piece and be a part of it?

There’s a perfect intersection of those too. At Indiegogo, they’ve started doing tokenized offerings. They did one blockchain-based offering and it was a real estate offering and it’s fantastic. Taking the basic with the Kickstarter Indiegogo model and adding blockchain to it, that’s a no brainer. They’ve already got a great platform and easy access. They’ve got a lot of buyers or investors. They already have their messaging. Their marketing is done great. That’s a perfect place to start plugging in some blockchain, and that’s why there’s an early mover in that space.

I interviewed the CEO of Indiegogo. He was a fascinating guy. What he was talking about was that Indiegogo was originally designed to do crowdfunding. Their platforms are designed from the beginning to do it. When the rules didn’t go through fast enough and the regulations didn’t happen and that there was no clarity in it, they couldn’t do what they needed to do. They shifted to doing a crowdsourcing model. That’s what you’re doing. You’re helping people pay for your sourcing and pay for your future product. Doing that reward model, their platform was already able to shift to it very easily without them losing all the ground and everything to saying, “I give up and we don’t have a platform anymore.”

Now, it’s coming full circle and they’re getting to go back to doing that. It’s great because they already had the framework built in and they already had a deep understanding there. There will be more. He talks about China and that they have a very close relationship. With China, they’re going deep into the blockchain and into all kinds of cryptocurrency and other things that are going on in China that we don’t even realize and don’t even understand. They are partnering up with Chinese companies to help bring American awareness to the products and brands that are good over there.

NTE 15 | Tokenization
Tokenization: ICO is based on demand and making money off money, not necessarily making value in a company.

 

There are some great brands emerging and great technology products. We’re not seeing them here in the US because usually it’s the name. You’re like, “That name can’t be any good.” It’s because there’s a mismatch there. They’re helping to bring them consumers who can talk back with them about what’s working with your product. What’s not working with your brand? How can you make this fit the American audience where they didn’t have any buyers yet? Now they have consumers and they have a conversation that can happen and improve their brand and move it forward.

You are from such a consumer goods background. You know production and manufacturing. You know so much about that space that your analogy there is so intuitive. Mine is more in the securitization of real estate, securitization of larger assets. I’m like, “Tell me all about this consumer products. What is going on?” I can give you the same with real estate. We are doing some deals with folks that are through Regulation S which is a way to bring foreign investment into the US. We’re able to help Chinese investors invest in American properties, companies, equities of whatever sort. The regulations have always been there. The bicycle vehicle is there. It’s just not had the gas in the tank from technology. Now we’ve got that. The trust can be there because people can track it now. It’s not like, “I gave them my money. They’re halfway across the world. They don’t answer the phone anymore. What happened?”

People get very confused and they think that ICO and tokenization is exactly the same thing. Let’s have you define that a little bit because there’s so much misunderstanding on that side of things. We get this idea that tokenizing is as bad as doing some of these scammy ICOs. Where’s the trust in that?

ICO stands for initial coin offering. It came out of IPO, initial public offering, which happens whenever a company goes public. When the company is going public, they have all kinds of filing stuff. They end up on the NASDAQ or whatever. They ended up filing publicly and they’re publicly tradable. Now it’s no longer just for their early investors and the people that thought up the company. Lyft is going to go IPO. I think I read that on Crunchbase. Facebook had an IPO in 2012. Those IPOs are the thing that big companies do after they’re established and through very regimented means in the current financial system.

ICO was the exchanges for cryptocurrencies. Things that people made up and said, “There’s so much of a piece of the thing that I’m doing. It’s a banana coin. It’s a coin for my dating app. It’s a coin that you can use on my platform. I’m going to list it on all of these exchanges. When you pay $0.10 for it and I market it well, we could hit a couple of milestones or maybe we don’t hit milestones because we don’t know what we’re doing. These scammy companies that use ICO, they could make a coin, release it for $0.10, people buy it, and then they go and exchange it somewhere on a third party exchange for $0.20 to make money. The money wasn’t made strictly based on the value that was made in the company. It was too abstracted. It was too obscured in this wild frenzy that was based on marketing more than anything.

There is such a huge value in having passive income. Click To Tweet

It was based on demand and making money off money.

They are making money off money and demand. That shows us when you finally saw people jumping on the email saying, “Why use a fax machine?” the demand was there. The demand drove the market in terms of communication. I keep making that analogy because now I see that demand for investment opportunities is still there. We need to have better metrics. This is where regulation has a real good place in this ecosystem to say, “Here are the protections. Here’s the truth you have to tell. Here are the metrics to look for. Here’s why that piece of that thing is going to be worth something or not.” You can evaluate it by more than just the model and the messaging that comes only from the company who has an interest in you believing them.

We need third party assessments. That’s where tokenization of things that are third party are assessed. For example, you have to tokenize your business and you say it’s worth $5 million. I’m like, “Tracy, I’d want to see some metrics around that. I would appreciate it if you would get a third party assessment of what your company is worth.” I’m going to go off of that because if you say it’s worth $5 million and they say it’s worth $2.5 million, your tokens might be worth half as much as you say. I just have to have access to that information to be able to make a sound investment choice. That wasn’t necessarily there. It wasn’t a standard for a long time. People did make money as things were going up. The demand flooded in and then it crashed because there were so many people that didn’t have things to back it up. They were running in. There wasn’t valued truly there.

We have a disclaimer at the beginning of every single one of our episodes. Monika and I are not allowed to give you investment advice. You are on your own.

I’m not an investment adviser nor do I play one on TV or on a podcast.

You are on your own with all of that. What we want to do is try to bring you ideas, companies that are out there doing interesting things. We’re bringing them as examples. We’re not bringing them as, “Please invest in this company.” We are not endorsing anyone including our own companies. We’re talking about it so that we can help think this through as a community and start evaluating what the New Trust Economy is going to look like for businesses, for investments, and for all of those things.

Not only just the investments, but what are we making value out of? There’s such a social impact aspect to this that we’re bringing an entire crowd of people that were blocked out of investing opportunities before. There is such a huge value in having passive income. Most of the people on the planet do not have anything resembling passive income. There’s this very small number of people in this world that have passive income and they get all the deals that perpetuate further passive income. That is changing and that’s exciting. We need to make sure that as much information get out there so people can start evaluating what that passive income opportunity looks like for them.

What makes the most sense for you? Please join us again. Go to NewTrustEconomy.com for the blog post and all the links in this episode as well as find us on social media @NewTrustEconomy. We look forward to connecting with you.

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