Introduction
Socially (if not technically), I think that there is still an expectation for tokens to be coupled with digital protocols – current launches in the crypto ecosystem writ large, for example, still consist primarily of new (or, really, mostly copied) blockchain protocols or applications. Irrespective of the merits or demerits of particular protocols, or their likelihood of turning into valuable platforms, from a capital formation structure perspective this is for the most part a tremendous waste of money, effort, and attention, because it isn’t funding anything new, novel, or needed. Most of these projects will die after a few years and leave behind nothing of particular interest or value to the future. Tokens are a powerful capital formation mechanism not intrinsically tied to any particular kind of production – why not instead use them to fund research and development of physical objects?
This offers a potentially compelling approach to simultaneously de-couple physical R&D from physical production. Suppose that an individual or group wants to develop a specification for a new and improved physical device – for example, a smartphone, a house, or a supersonic aeroplane. At the moment, they have basically one option in the current capital formation ecosystem, which is to start a company that designs and produces the object in question, and sells it. In some areas (smartphones), this works pretty well, in others (supersonic aeroplanes), it’s less clear – but coupling physical design and physical production has some systemic disadvantages compared to a hypothetical world in which they were decoupled, namely:
- Physical production of advanced devices is extraordinarily capital-intensive (think: chip fabs or manufacturing facilities), which limits entry and makes the market less competitive.
- Sustainability of individual companies operating in this model typically depends on keeping large parts of designs secret, which (a) limits how fast the ecosystem as a whole can innovate (compared to an open-source approach), (b) creates barriers to deep user understanding and control over the devices, and (c) creates a point of failure where knowledge will be lost should the company go bankrupt / dissolve / etc. (as often happens).
- A lot of effort is simply duplicated in recreating research and designs being done elsewhere, spent in reverse engineering, etc. which could be de-duplicated if the designs were all open-source.
- Even communities who could locally produce some devices (simple phones, say) from a pure physical manufacturing perspective don’t have the design expertise or schematics to do so.
Tokens for Physical Protocols
Suppose that instead of using the capital formation mechanism of tokens to support development and operation of digital protocols, we use it to support development and operation of physical protocols. A physical protocol consists roughly of:
- At a high-level, an object that this protocol aims to specify how to produce. Examples: a smartphone, a minivan, a wood house, a speaker, etc.
- Iterative versions of detailed specifications of how to produce that object (on well-specified production infrastructure) (similar to the iterative versions of digital protocols when blockchains are upgraded).
Similar to how tokens for digital protocols often themselves consistute part of a governance substrate for how the digital protocol in question evolves over time, and how to allocate resources to further its evolution, one could imagine the same for physical protocols, e.g.
- A physical protocol token is first created and launched by an initial group who has a vision for the object in question.
- Once operational, a governance mechanism can help steer the evolution of the physical protocol over time, govern creation of new physical protocol tokens, redistribution, etc.
Tokens for physical protocols could be used to fund much of the same kind of research and development that already happens within smartphone companies, car companies, aeroplane companies, etc. but with the key difference that the initial gestation and sustainability of this R&D is not dependent on keeping the R&D secret, and the R&D does not have to be coupled to actual production. In fact, the incentives (at least in a healthy information ecosystem) should favor communicating the R&D as well as possible, in order for others to accurately judge its value. Actual production can be kept local (and therefore resilient). Many physical protocols will certainly fail, but they will do so gracefully, as digital protocols funded by tokens now (mostly) do today: all of the R&D will be public and available as a resource to future participants, who can learn from it and save themselves from repeating the same mistakes.