Despite the hype and speculation that often puts them on the front pages, blockchains are here to stay. It is only a matter of time before they start to disrupt the way we work, invest and play. This series of short articles is a simple, non-technical overview of Blockchains. It is aimed at investors, executives or anyone who wants to prepare for the impact of the changes brought by this disruption.

Part 1 - High level overview of blockchains.

Part 2 - What makes blockchains self-sustaining.

Part 3 - Who are the main actors and how they work together to make operations of the blockchain possible.

Part 4 - How blockchains agree on a common truth.

Part 5 - Crypto tokens and how value travels across blockchains.

Part 6 - A brief history of blockchains and what lies ahead.

Part 7 - Main constrains of blockchain based systems.

Part 8 - What lies ahead.

Recap - What is worth remembering.

Money is often considered a form of "frozen" labor, as it represents the value of the time, knowledge, resources and effort a person has put into their work.

In this sense, ideal money would be specific to the type of goods or labor it represents and be easily exchangeable for other types of money. This way its value will always reflect the actual demand for that particular good or service at a given point of time. For practical reasons, rather than having "plumber money", or "carpenter money", we settled on a fixed number of money, or currencies, that are usually tied to the economies of the countries where the labor resides. This was mostly because maintaining a currency is not a trivial task. Creating a new currency involves overcoming a range of technical, financial, and political challenges, making it a complex and difficult process. Such a process requires sophisticated technological systems to monitor and manage the money supply as well as prevent counterfeiting. In addition, the more currencies in existence, the more complex is the task to maintain the correct exchange rates among them.

One of the downsides of exchanging labor into the same currency as we have now, is that from the moment that exchange happens, the purchasing power of our labor starts to diminish due to inflation. Based on the economy, and economic cycles, this inflation can sometimes rapidly eat into the future purchasing power of our “frozen” labor.

Blockchains provide the technical infrastructure needed to easily create new types of currencies known as "virtual currencies", "crypto currencies", "crypto tokens" or simply "tokens". Blockchains ability to track history and neutral status makes them an ideal platform for online communities to experiment with different economic incentives that can help make those communities financially sustainable.

You will hear the word "community" used quite often in reference to blockchains. In the world of blockchains, a community is a loosely organized group of people or organizations around a common goal. Contrary to corporations that have a rigid control structure headed by a CEO and board of directors and operate to increase shareholder profits, communities operate similar to marketplaces where participants are driven by their own interests, interact as equals and cooperate because they have economic incentives to do so.

With blockchains, communities for the first time have the proper tools to directly reward both contributors and consumers of community goods by aligning their financial interests. For example, creators such as artists or musicians, can be rewarded with community tokens for producing works of art or music that is valued by the community. Fans can purchase their creations with the community's tokens, creating a marketplace where community tokens are exchanged both within a community or between different communities.

While much of this dynamic can be achieved by using a single currency like US Dollars or Euros, it would expose the community to extra risks and operational complexities brought by regulation, taxation and the need for interoperation with traditional banking systems. Navigating those risks is prohibitively expensive for the majority of the communities and until recently have been only within the reach for banks or large corporations. In addition, relying on a particular currency would require the community to create a legal entity registered in a particular jurisdiction which in turn would put unfair limitations on members that live outside this jurisdiction.

Once their labor is tokenized - converted to tokens - the creators have two options, they can decide to exchange tokens for something else, like real money at current exchange rate or keep the tokens hoping that as the community grows and their tokens appreciate. Being part of the community, they generally should have a much better idea of how the community will develop in the near future and if it is better to sell now or wait. In contrast if the same artist is being paid in a government controlled currency, they have to trust that government’s monetary policy to preserve the value of their labor.

Here are few more examples of how different communities or organizations can use crypto tokens:

• Supply Chains: An independent organization of growers can use cryptocurrency tokens to track goods and ensure transparency in supply chain management, improving efficiency and reducing fraud.

• Gaming: Cryptocurrency tokens can be used as in-game currency or as a means of exchanging virtual goods between players.

• Identity verification: Cryptocurrency tokens can be used to securely store and verify personal information for identity purposes, reducing the need for centralized storage of sensitive information.

• Non-profit organizations: Cryptocurrency tokens can be used to track donations and ensure transparency in funding distribution for non-profit organizations.

• Resource Sharing: Cryptocurrency tokens can be used to compensate people for sharing personal resources like hard disk space, computing capacity or network bandwidth. Companies or other organizations that need these resources will need to purchase those tokens on open markets. This extra demand will increse the token price and incentivize more people to share more of their resources.

With having so many tokens, exchanging tokens for goods and services could become a problem. To address that, modern blockchains have developed well established and trusted token marketplaces that automatically facilitate the swaps of any type of token for another following the rules of supply and demand. As long as there are at least some people interested to sell and some to buy, these marketplaces will automatically find the correct exchange ratio and facilitate the transaction for a small fee, which, as you may have guessed, will go towards the community that operates that particular token marketplace. Over the last few years this supporting infrastructure, also known as Decentralized Finance or De-Fi has matured significantly and now provides services like borrowing, landing, insurance and derivatives.

As we mentioned earlier, blockchains provide the infrastructure to tokenize value. "Tokenization" is a term often used to describe the process of creating and maintaining a blockchain token that closely represents some sort of external value - either goods or services. In order to cover a variety of possible scenarios, blockchains offer different types of tokens based on the type of value that needs to be tokenized. Tokens fall into 2 main groups depending on if the value that is being tokenized, can be easily divisible into smaller parts. One type is called "Fungible Tokens" and the other "Non Fungible Tokens".

• Fungible tokens are used to represent goods or services that are easily divisible into fractions and once divided, each fraction has the same value as the other fractions. A good example of fungible goods is money. A 10 dollar bill can be split into 2, 5 dollar bills or 10, one dollar bills. Regardless of how you split it, they all represent 10 dollars worth of value and the value of 5 dollars is always half of the value of 10 dollars.

• Non Fungible tokens, also known as NFTs are tokens that represent something of value that can’t be logically divided, and makes sense to be transacted only as a whole. Works of art, music or property deeds are good examples of things that are tokenized using non-fungible tokens. If somebody was to use a blockchain token to represent an ownership of an airplane or a concert ticket - it would not make much sense to sell half or ¼ of it to somebody. Similarly, it makes little sense to own ⅓ of a song. If you do, which ⅓ do you have? Is any of the thirds the same as others? - Is the beginning of a song the same as the middle or the end? Probably not.

The ability to reliably establish property rights is critical for a well functioning economy and NFTs provide a straightforward way to represent the ownership of physical or digital things. We already know that blockchains are exceptional in their ability to preserve history. When transacting NFTs, we automatically get a reliable history of ownership that is very important in many fields from art collectors to logistics. Being able to reliably prove that an artifact was owned by a famous person can dramatically increase the value of something. With all those capabilities it is not difficult to understand why Art NFTs became darlings for crypto speculators. In their heyday some NFTs from popular NFT art collections were exchanging hands for hundreds of thousands of dollars.

Now that we understand tokens and their economic value, let’s look at the relationship between blockchains and their tokens. Every blockchain has at least one token - known as “official” or “base” token. Similar to the way the "official currency" of a country is the one that is used to pay taxes, the base token of a blockchain is the token that is used to pay for the transaction fees. Some blockchains have only one token - the "base" token, while others have thousands of different tokens available to their users. Some tokens exist on only one blockchain, while other tokens can exist simultaneously on multiple blockchains. Often, in the popular press, the name of the official token is used interchangeably with the name of the blockchain, but they are separate things. For example the Bitcoin blockchain has only one token - BTC or the Bitcoin Token which is also the base token for the blockchain. The Ethereum blockchain has thousands of tokens, but the base token is Ether or ETH.

All base tokens are fungible tokens by definition - they can be subdivided into smaller and smaller denominations, similar to Dollars and Cents. In many blockchains, smaller denominations have different names - for example the smallest denomination of Bitcoin is called “Satoishi” and is equal to one hundred millionth of a bitcoin. In the Ethereum network the smallest denomination is called “Wei”. It is such a small fraction that in practice its larger cousin “giga wei” or “gwei is used - 1 gwei is equal to one-billionth of an Ether.

Next: To better understand how blockchains are evolving, is helps to explore how we got to here. A brief history of blockchains.