Tokenization isn't enough.

hatu (76)in #bitcoin • 6 years ago (edited)

Vitalik Buterin addressed the recent Devcon audience by explaining that cryptocurrencies and eased payments are the key utilities of blockchain technology.

However, tokenization is an extremely popular usage of blockchain technology and it has forced many developers to go astray from properly executing the currency-factor of tokens. There's a number of active ICOs aiming to tokenize gold, palladium, a basket of metals, and so on. However, tokenization alone isn't enough as it's already possible to access NYSE-listed ETFS backed by metals. The tokenized form of these simply offers utility within exchanges, and Crypto direly needs to move beyond popularity among just trading.

Kinesis, a protocol to emit gold-backed stablecoins upon the Stellar blockchain, shows how tokenization can be used to create a revolutionary shift in day-to-day currencies. Presently, the world is adjusted to the usage of fiat currencies, which, since their inception, have constantly devalued due to the constant surplus printing of cash required to sustain inflation. Thus, holding cash is actually a means to lose wealth and this factor has had the greatest negative impact on the world’s poor, who are often illiterate in financial knowledge.

A New Monetary System

Kinesis aims to build a new monetary system that liquidates the trust people have in gold.

For long, gold has been the key means with which the masses have beaten inflation. Gold tends to appreciate over decades, and unlike other assets, it faces strong appreciation during times of financial distress. Despite the benefits gold provides as a store of value, its physical state raises many burdens in its utility as a means of value exchange—a currency.

Gold is heavy and difficult to transport; it also cannot be used for small purchases.

The problems associated with gold forced the world to adopt paper currencies that were backed by gold. However, before long, the gold-backing was removed and thus began the deflationary nature of fiat currencies.

What if gold can be easy to transact?

Tokenizing Gold as a Currency

A number of projects have already attempted to tokenize precious metals in the hopes of making it easy to store value in them. However, while such efforts were innovative, they eluded the most important purpose of blockchain technology: facilitating transactions via cryptocurrencies.

Tokenization indeed creates a currency as tokens can be spent. Tokenization of gold innately creates a currency that is backed by gold. Thus, blockchain technology can usher a new era of gold-backed currencies.

Unlike the past attempts to tokenize gold, Kinesis aims to create a new form of money, one backed by gold. Blockchain makes it possible to usher an era where gold-backed currencies can be an important part of the digital era. As a vast portion of transactions, today, happen on a digital platform, Kinesis can fuel the usage of gold-backed, fractional, and low-cost transaction.

The Benefits of a Gold-Backed Currency

As previously mentioned, fiat currencies are constantly depreciating. Meanwhile, gold appreciates on the long-term. There’s a finite supply of gold and, thus, it’s not possible to emit more than a certain amount of gold-backed money. Thus, Kinesis aims to create a currency that is based on something of fixed supply.

Moreover, as gold is already used a store of value that appreciates in the long-term, gold-backed money would not need active investment to sustain one’s wealth; the money itself will match or exceed inflation on the long-term. This is the greatest benefit gold-backed money provides to the masses.

While the wealthy have access to investment support, the masses are left to vet investment choices by themselves. Intimidated by the risks of this challenge, most opt to hold cash and constantly face a depreciating net worth. While a vast portion of blockchain projects are trying to bank the unbanked so that they may have access to financial support and advice, thereby limiting their loss due to global inflation, Kinesis is fighting on a different side.

Through Kinesis, the unbanked would simply have access to a form of money that does not deflate and thus won’t need financial advice to sustain their wealth. Given that internet penetration and smartphone access outnumbers bank usage in the world’s weakest societies, Kinesis’s vision can provide a valuable means to fighting loss of net worth in the world’s weakest societies.

Even in developed nations, many do not possess the knowledge to make sound financial investments and simply opt to place their wealth in savings accounts. There are tens of trillions in bank accounts catching dust-like returns that are far below inflation rates. Kinesis’s gold-backed money can offer an alternative reality to these people as-well.

Based on Stellar

Kinesis is a project by Allocated Bullion Exchange, an established player in the gold market. ABX is essentially creating Kinesis as a protocol to launch gold-backed money. The gold backing the emitted money will be stored in legally-compliant vaults. As ABX has a network of vaults across the world, any legal pushback in one country would not hinder the progress of Kinesis as the gold would be easily transferred to a different vault.

While Kinesis is being created by ABX, the money exists on Stellar, a decentralized blockchain. Beyond providing a decentralized infrastructure to this new era of gold-backed money, Stellar allows Kinesis to access payment flow at incredibly low costs.

While current payment cards charge merchants, on average, 3% per transaction, Stellar will allow Kinesis transactions to come at a cost of just 0.5%. This figure can likely drop as adoption grows. Thus, merchants will be able to adjust costs as they will now have a lower cost of fulfilling payments.

Tokenization Works; Time to Extend its Utility

Tokenization is one of the few tried utilities of blockchain technology that works. Word is, many securities would soon be issued in a tokenized form to lower costs and increase access due to eased and trustless fractional ownership.

Kinesis is utilizing tokenization to put blockchain technology to the utility it was meant for: payments. It’s doing so by delivering a currency backed by the most-trusted asset in the world (gold).

The gold-backed money being issued by Kinesis will allow people to innately pay with gold but in a form that has no weight, exists on a decentralized blockchain, has a minimal cost of transaction, and is easily divisible. This form of money will ensure members of the world’s weakest societies and the masses do not face a depreciating net worth due to the forces of inflation.