2017 was the year of the rise of financing via digital tokens (see chart below). While some initial coin offerings (ICOs) have been asset-backed (i.e. they are the equivalent of raising capital via more traditional means), the majority of ICOs have been for tokens backed by nothing more than the belief in an idea.
This Christmas blog looks at this latter category of tokens.
The value of ICOs by month, in millions of US dollars

Source: CoinDesk [1]
First, a brief history of the quantity theory of money
Visit any museum of significance today, and you are very likely to find the quiet corner where the spotlight shines on the glass cabinet showing some of the predecessor coins that allowed the economies of the ancient world to function. You can’t use those coins today, but once upon a time they were relevant.
From the descriptions on the old coins, we know that their issuer possessed wealth and power: emperors, monarchs, temples, religious orders, cities, leagues, confederations and republics. With this power came the ability to influence the value of the coin by regulating its metallic mix and weight, and by controlling the money supply. The ancient Greeks knew that if you lost control of the money supply, you risked chaos — a word they invented. Hence, they took extreme measures to control the supply of money. Any foreign coins entering the city gates had to be exchanged for the local coins in a public place. Moreover, the production of counterfeit coins was punishable by death.[2] The ancient Greeks knew, therefore, about the quantity theory of money.
In our digital age, instead of the ancient Greek city states and their citizens, we have digital ecosystems where digital tribes trade their digital tokens and use blockchain technology and smart contracts to ensure that their tokens are exchanged in a public place and that the production of counterfeit tokens is impossible. And just like the ancient Greek city states needed to have loyal citizens who would keep the faith, a successful token in the digital age needs to have an incentivized digital tribe of dedicated followers. Incentivization can happen either because a member of the tribe expects to profit financially (the value of the token will rise, they believe) or because they are disciples of the cause which the token represents. Either way, the business model linked to the cause is that you can only use a very particular type of token for transactions in a particular ecosystem. That is not very different from the monetary policy of the ancient Greek city states: you needed to use the local coins. If you didn’t have the local coins, you had to buy them first.
A cause for every tribe
In the digital age, the idea that individuals will passionately support a cause or interest by handing over fiat money for tokens, or be willing to be paid in tokens, only makes sense if you “get it” — the way they do. Let’s take a closer look at the world of causes. One objective measure of the exponential rise of causes with dedicated communities comes to us from the world of NGOs: In 1945, there were 41 NGOs granted “consultative status” with the United Nations. By 2016, that number had risen to 4,665 — still only a small fraction of the more than 24,000 NGOs in the UN’s database. [3] But the number of causes about which communities of individuals feel strongly appears to be rising exponentially. The digital age allows these communities to organize themselves across borders and to fund themselves in new ways. Tokenization, with easy digital wallets on every phone, is a technological trigger to take a new look at the incentive schemes of the vast world of causes.
Having a cause that you are passionate about also covers that most important of tribal identifiers: food. Digital wallets and tokens have the potential to change the revenue streams of the producers and distributors of food. Consider that the number of food items sold in the average supermarket has increased from approximately 8,000 in 1966 to almost 40,000 in 2015. [4] In the digital age, companies competing in such a market have no choice but to find and incentivize their digital tribe. If you’re selling “plant-based” food products, say, you need to keep your digital tribe informed and supportive. And what better way to incentivize clients and prospective clients than to allocate a portion of advertising spending to tokens that can be distributed to those members of the tribe willing to participate in surveys and experiments about new variations of your product offering? You could, of course, try it the old way — like placing an ad in a printed newspaper, but your tribe has long gone digital. You need to find them, connect with them, keep them and let them spread the word about your offering.
Concluding thoughts
The rise of blockchain-based tokens trading in distinctive digital ecosystems is giving rise to a new phenomenon: the tokenization of the economy. Wonderful new offerings are being created as a result. So, while the majority of ICOs have been for tokens backed by nothing else than an idea — ideas matter. To be successful, though, a digital token will need an incentive scheme that connects with its digital tribe.
By Costa Vayenas
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[1] Accessed on 21 December 2017, https://www.coindesk.com/ico-tracker/
[2] Cited in Franciszek Sokolowski (1976), “The Athenian Law Concerning Silver Currency (375/4 B.C.)” in Bulletin de correspondance hellénique Vol. 100, no. 1, pp. 511–515.
[3] Cited in Costa Vayenas, Democracy in the Digital Age: How we’ll vote and what we’ll vote about, (2017), p. 39.
[4] Based on data for supermarkets in the United States. The number of food items sold in the average American supermarket has increased from approximately 8,000 in 1966 (see Theodore R Gamble, “The Food Industry and Consumer Protection” [1966] in Food, Drug and Cosmetic Law Journal, pp. 6–7) to almost 40,000 in 2015 (FMI, “Supermarket Facts” <www.fmi.org/our-research/supermarket-facts> accessed 28 August 2017).