The concept of “token” has been rebranded with the advent of cryptocurrency and blockchain. In a general understanding, a token is a unit with its value assigned by its compositions (when factoring in problem-solving power, supply and demand).
But in the framework of tokenomics, a token is built explicitly on an existing blockchain. Basically, this is what draws the line between a token and a coin.
Tokenomics (aka economics of tokenization) is the economic properties of a token. Plans and designs for production, distribution, and consumption are economic properties of a tokenized ecosystem. Tokenomics considers market design, mechanism design, and token design.
However, a well-designed tokenized system has economic rules and incentives that govern the production, distribution, and consumption of a token. All of these define the long-term outcomes of the project.
What are the differences between Cryptocurrency and Cryptoeconomics?
Just like traditional currencies (EURO, USD, etc), a cryptocurrency is a digital exchange mechanism secured by blockchain and cryptography.
So, in this crypto ecosystem, tokens are a subset of a cryptocurrency. However, all tokens are cryptocurrencies but NOT all cryptocurrencies are TOKEN.
A company has to govern and monitor interactions of its token production, distribution, and consumption. Cryptoeconomics is, therefore, an interdisciplinary and deep understanding of cryptography and economics.
Just like in the case of cryptocurrency and tokens, tokenomics is a subset of crypto-economics.
Tokenomics VS Cryptoeconomics – What’s the difference?
As mentioned above, you will find tokenization in crypto-economics. So there are lots of similarities, but there are clear differences.
Bitcoin’s crypto economics intend to give bitcoin miners a reason to mine new Bitcoin. They validate each transaction and receive new BTC as a reward for their efforts. So when we talk about crypto economics, it refers to the incentivized structures designed to produce, promote and power creation and transaction validation of a cryptocurrency.
Say, by the year 2140 when all BTC will be mined, miners will still be incentivized to keep mining and validate transactions. Economic agents like households, and firms/businesses, have to pay a certain transaction fee to the miners.
Tokenomics focuses on the application layer of a token. The goal is to ensure that a crypto token is used with the ecosystem as intended.
In other words, tokenomics does not concentrate too much on the supply side and transaction validation but more on the events that happen afterward.
In tokenomics, you pay attention to token metrics of what the token is used for and what behavior the company and market makers elicit from it.
Emmanuel Ifeanyi Nwone
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