No, we are not going to “tokenize everything“

BITCOIN, MONEY / Saturday, September 24th, 2022

Value will flow into Bitcoin, not some digital token standing in for a tiny digital piece of a London condo.

By Niko Jilch

Sometimes I forget how slow things are in the „real“ world.

I’m sure many of you will remember the good old days of 2017 when we were told that „everything will be tokenized“.

Well, five years later, not many people in „crypto“ still stick to that line. But when you talk to bankers, they still just love the idea. Gives them something to do. A project. Something to work on for a few years.

Real estate on the blockchain, stocks on the blockchain, bananas on the blockchain.

You get the picture.

I don‘t think this is going to happen. At least not in the way it is marketed now. Sure, there might be some minor uses, just like NFTs might be useful in some circumstances in the future. For concert tickets maybe? And maybe “blockchain” can help somewhere in the backend in the fields of security “storage” and custody.

What is that? Not exciting enough?

Well, that‘s my point.

The whole tokenize-everything-thing so far is one fast hype train. It is exciting not for the technical efficiencies it may provide but for the exact opposite: rent seekers seeking rent. Actually, between the lines, some projects seem to suggest to everyone: “You, too, can be a rent seeker.”

The multiply everything by two scam

The simpler minds fall for the very first trap. Let’s call it the multiply-everything-scam.

This of course was only implied: If everything get‘s tokenized on some smart-contract-chain, shouldn’t you get some of the native token? The value flowing into the system will surely pump it, no? Well: no!

This is how the “midjourney” AI sees “real estate tokenized”

Even if you manage to tokenize houses, condos, art and bananas their value doesn’t magically multiply by two to pump your shitcoin.

Actually there is an argument to be made that the value gets diminished. Buying a small piece of a condo is not the same thing as „buying a condo“.

Same goes for tokenized art. You don’t own a whole thing, just a digital token that (in the best case) will give you ownership of a small part. But there is nothing really to “do” with that small part – other than trading it on some exchange.

Let’s say 100 people own a condo. It‘s not like they can all live there, right? So you have to rent it out or sell it to make money. You can sell your individual piece, sure – but only to people who want to be in the same situation as you are.

You‘re not a real estate investor, you just own an NFT that let’s you larp as one. How are you going to decide on a new tenant? A fucking DAO?

With stocks it might be different. I theory it could be a good idea to „tokenize“ stock ownership. But even if we get rid of all the red tape that would prevent an efficient system, the outcome wouldn’t be what shitcoin-investors and bankers hope.

This would only be feasable if it lowers the cost of entrance for the investors – so the rent seekers would get even less.

And we haven’t even mentioned the fact that the oracle problem cannot be solved.

If real estate gets tokenized, who is going to check if the house you’re buying even exists? What if the bananas rot away? They still “exist” on the blockchain but turn to dirt in the real world…

You need to introduce a trusted third party. Actially more than one.

What if I lose the key to my token that proves my ownership of 1/100th of a condo or piece of art? I’m obviously screwed – but so are the other 99 investors. Nobody will ever own the whole thing again, right? And if real ownership is impossible, wouldn’t the price of the asset suffer?

I think that the tokenize-everything-story is just another variant of all shitcoin-stories.

There is some truth to the narrative but the solutions that are offered so far are all basically scams – either on purpose or by accident.

This is how midjourney sees the “Mona Lisa tokenized”:

Now here is the death blow.

Even if all the stories of the tokenize-everything crowd will turn out to be true.

Even if all technical problems are solved and the condo that’s been divided into 100 pieces somehow retains the same market value as one that is still whole.

Even if Unicorns are discovered in the Amazon rain forrest and start doing infomercials shilling tokenization – there is still a gigantic elephant in the room that we do need to talk about.

We need to talk about the actual reason why people would invest their money in real estate, art, stock indices and the like.

The reason is called “store of value”.

We need to understand that many people are only in the market because the money is broken and therefore not feasible as a long term store of value. This has pushed the prices of stocks, real estate, art and many more asset classes for decades.

Now, one thing is true: The value that is stored in many asset classes today will absolutely be digitally tokenized. But it will flow into Bitcoin.

Bitcoin was created to solve the problem that led to all the investment in generic asset classes in the first place.

Bitcoin has none of the above mentioned problems that tokenized stuff has. It is a purely digital asset. So if you buy real estate, metals, sneakers or stocks just to store value, why should you ever go into the tokenized versions of these assets? There is simply no reason to do so.

Actually, even the original, untokenized version of the asset suddenly looks inferior.

In the long run you will get out completely and get into the vastly supreme alternative: Bitcoin.

All the while poor suckers are being told that they, too, can finally own 1/1000th of a London townhouse.

Sad, really.

We would love to hear your thoughts on this