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What is Tokenomics Explained | Tokenomics 101: Everything You Need To Know - YouTube
Channel: Learn with Whiteboard
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welcome to whiteboard programming where we simplify聽
programming with easy to understand whiteboard videos聽聽
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and today i'll be sharing with you what is聽
tokenomics so let's get started first off聽聽
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what is tokenomics well tokenomics consists of聽
two words token and economics and is also called聽聽
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as cryptoeconomics it is defined as the quality of聽
a token which will convince a user or an investor聽聽
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to adopt it and helps in building the ecosystem聽
around the underlying project of that token but聽聽
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you must be wondering now hey what do you mean聽
by quality well to put it simply anything which聽聽
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impacts the token's value is a part of tokenomics聽
and you can say that tokenomics is a pretty broad聽聽
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subject and includes a variety of components聽
and the primary one to consider is that how the聽聽
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nature of such commercial differs from traditional聽
industrial economies as its characteristics are聽聽
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decentralized, require very little capital to scale聽
and offer significant security of transactions聽聽
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but hey what is a token well in real life a token聽
is a thing which serves as a visible or tangible聽聽
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representation of a fact, quality, or feeling to聽
be more clear you can even say that you're having聽聽
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empty pocket right now and you will still stumble聽
across real life tokens for example your gym聽聽
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membership card is a token that represents the聽
fact that you have subscribed to a gym聽聽
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your driving license is a token which represents聽
the fact that you have taken training required聽聽
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to drive in your country your hotel key card聽
shows that you have paid the hotel for your room聽聽
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similarly in cryptoverse a token聽
is a representation of something聽聽
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in its particular ecosystem it could be value,聽
stake, voting right, or anything and just note that聽聽
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a token is not limited to one specific role and聽
can fulfill a lot of roles in its native ecosystem聽聽
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and furthermore broadly you can say that a token聽
represents an asset or utility that a company has聽聽
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and they will usually give it away to聽
their investors during a public sale聽聽
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next let's have a quick comparison聽
between tokens versus cryptocurrencies聽聽
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well the biggest difference between the two is聽
that cryptocurrencies have their own blockchains聽聽
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whereas crypto tokens are built on an existing聽
blockchain also do note that cryptocurrencies聽聽
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are built keeping in mind the monetary benefit聽
whereas many tokens are created without the intent聽聽
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to represent money or monetary value at all moving聽
further it's time to discuss the types of token we聽聽
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can use to best suit our possible requirements for聽
this we need to understand several categories into聽聽
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which we can differentiate the tokens and as it's聽
pretty vast topic I'll only be mentioning a few聽聽
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important ones in this video number one layer 1
vs layer 2 here layer one is the underlying聽聽
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or the main blockchain that is the token which聽
powers this blockchain is the layer one token聽聽
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and layer two is the decentralized app or聽
ICO built on top of the underlying blockchain聽聽
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confused? let's take an example to better聽
understand it Omisego is a project that is聽聽
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built on top of ethereum blockchain in this case聽
ethereum is layer 1 and is powered by the ether聽聽
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the layer 1 token and Omisego is layer 2 and聽
is powered by omg that is the layer 2 token聽聽
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here you'll notice that the well-being of layer 2聽
application is completely dependent on the overall聽聽
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the well-being of layer 1. if there are some聽
issues with the layer 1 blockchain that is聽聽
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for example a hack or a bug it's going to聽
affect the overall well-being of layer 2 as well聽聽
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while there are many projects that are聽
working on making layer 1 and layer 2 as聽聽
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independent as possible but if you yourself聽
think on a more practical level it would be a聽聽
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lie to suggest that these two have no connection聽
whatsoever now if a layer 2 application is doing聽聽
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well then it reflects positively on layer 1 as聽
well as such many layer 1 projects try their聽聽
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best to attract as many developers as possible聽
to their platform so as a conclusion we can say聽聽
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that higher the quality of layer 2 application聽
better will be the value of layer 1 network
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number 2 original chain vs forked chain聽
this second category is mostly about layer聽1
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protocols which is to differentiate聽
whether the protocol is original or聽聽
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has it been forked off some聽
other protocol for example聽聽
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bitcoin and ethereum are examples of original聽
protocols while zcash, bitcoin cash, and litecoin聽聽
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are all examples of forked chain since they have聽
been forked from the main bitcoin protocol聽聽
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i'll recommend you to watch my video on blockchain聽
forking to better understand this concept the link for聽聽
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the same is given in the description below next聽
number three utility vs security token because most聽聽
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of the ICOs are investment opportunities in the聽
company itself most tokens qualify as securities聽聽
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however if the token doesn't qualify as a Howey
test then it is classified as a utility token聽聽
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these tokens simply provide users with a product聽
and/or a service and you can more of think of聽聽
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them like a gateway token to state broadly聽
utility tokens have the following properties聽聽
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number one they give holders a right to use the聽
network number two they give the holders the聽聽
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right to take advantage of the network by voting聽
number three since there is an upper cap on the聽聽
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maximum token availability the value of the tokens聽
may go up because of the supply demand equation聽聽
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on the other hand a crypto token that passes the聽
Howey test is deemed to be a security token these聽聽
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usually derive their value from an external聽
tradable asset and because of these tokens are聽聽
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deemed as a security they're subjected to federal聽
securities and regulations and lastly do note that聽聽
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if the ICO doesn't follow the regulations聽
then they could be subjected to penalties聽聽
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number four fungible vs non-fungible聽
to state tokens may be fungible that is聽聽
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they can have interchangeability of units of a聽
commodity with other units of the same commodity聽聽
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like bitcoin or ethereum or non-fungible which聽
on the other hand are unique and thus cannot聽聽
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be interchanged ID cards or Gym membership聽
cards are examples of non-fungible tokens聽聽
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further you must understand that聽
tokenomics is evolving with innovation聽聽
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in tokens and thus there is a growing number聽
of tokens with more refined properties聽聽
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these tokens apart from the classification we just聽
discussed can be based on the following factors聽聽
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number one rights where tokens may give the holder聽
property rights or give the holder access rights聽聽
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number two durability wherein tokens can聽
remain stable in the face of censorship聽聽
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or attacks number three regulatory wherein
tokens are easy to classify and regulate聽聽
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number four purpose wherein tokens are created聽
to serve as a proof of behavior or value creation聽聽
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or to represent existing asset or access right聽
number five supply wherein we offer a fixed supply聽聽
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of token or sometimes unlimited number six token聽
flow wherein tokens can be generated linearly聽聽
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and destroyed after use or remain in circulation聽
last but not the least temporal wherein tokens may聽聽
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or may not have an expiration date next let's聽
discuss about what makes tokenomics different聽聽
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having briefly understood what tokenomics is let's聽
now explore why it is fundamentally different from聽聽
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the economics we generally operate in in the聽
modern economy economic forces that govern our聽聽
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lives have over time become increasingly channeled聽
by a few centralized bureaucratic institutions聽聽
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with the access of internet and distributed ledger the聽
sources of various kinds including financial聽聽
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capital, supply chain, information etc are now聽
flowing through these informational networks聽聽
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and quite similarly development in blockchain聽
provides secure and reliable way to model token聽聽
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economies to reflect better markets and serve as聽
underlying logic in the face of new technologies聽聽
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some of the applications of token economics are as聽
follows number one it offers full cost accounting聽聽
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wherein tokens can be coded to reflect both聽
economic and social cost while accounting for聽聽
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example one can code into price of diamond that聽
are sourced ethically versus the ones that are not聽聽
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number two there's better alignment of producer聽
and consumer with token based economies one can聽聽
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bypass big enterprises that may not align with聽
consumers value this can be done by replacing聽聽
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organizations with token-based blockchain聽
networks wherein producers and consumers聽聽
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can find each other for their specific needs and聽
bypass a bigger platform this primarily replaces聽聽
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the big businesses with community-based聽
solutions and due to such a solution聽聽
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as the network scales the profits don't get sucked聽
by big centralized management but are instead聽聽
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distributed throughout the network's token holders聽
number three they offer triple entry accounting聽聽
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those who don't know about this it is a method of聽
proposed enhancement of double entry bookkeeping聽聽
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by simply cryptographically sealing all聽
entries dealing with an outside party with聽聽
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a third entity in the system this third entity聽
is the blockchain where these entries are posted聽聽
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as both receipts and transactions this if used聽
well easily replaces the administrative cost聽聽
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of auditing complex organizations number four聽
incentive systems with tokenomics built on聽聽
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blockchain protocols tokenization will become聽
a reward for an increasing area of transactions聽聽
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that is every source of value can be tokenized聽
to build microeconomics that aligns individuals聽聽
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incentive with the goal of growth of the ecosystem聽
further let's talk about investment and tokenomics聽聽
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now with a great number of projects funding聽
themselves using ICOs it has become important聽聽
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for investors to develop tools to analyze the聽
viability of their investment opportunities聽聽
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and as an investor here are the factors that you聽
may consider in assessing a token project as well聽聽
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first the team you must check the credentials and聽
reliability of the team that is behind the project聽聽
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next business model how robust is the business聽
model they are offering as the complexity of聽聽
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token scales from simple payment mechanisms聽
to the greater ones next PR and branding聽聽
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how well the project is being mobilized to the聽
community because in the end community matters聽聽
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next legality now legality around tokens still聽
remain in the dark in many jurisdictions and聽聽
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thus projects need a good legal team to make sure聽
that the project stands good on the legal grounds聽聽
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next token structure this is very important聽
and you must understand the technical aspect聽聽
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of the nature of the token which聽
is being developed or distributed聽聽
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lastly to conclude we can say that tokenomics as聽
a field is still in it's infancy and considering聽聽
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that it changes a lot of foundation cornerstones聽
of the current world economy there's a lot to be聽聽
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explored along with a wider option of tokens many聽
organizations are developing more complex and聽聽
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specific use cases every day with that I hope聽
this video was helpful to you and serve value聽聽
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if you love my content feel free to smash that聽
like button and if you haven't already subscribed聽聽
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to the channel please do as it keeps me motivated聽
and helps me create more content like this for you
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