The Enterprise Ethereum Alliance (EEA) is working with Microsoft and more than a dozen businesses, research organizations and industry consortiums to create a blockchain-neutral business-focused Token Taxonomy Framework.
In essence, the group is working to universally define in non-technical terms what a token is – regardless of the blockchain platform involved – and create a common set of terms and definitions for cross-industry business use. Creating a single set of definitions and terms will help enable blockchain platform interoperability.
Once defined, the taxonomy can be used by businesses as a baseline to create blockchain-based applications using digital representations of everything from supply chain goods to non-fungible items such as invoices.
"We'll do some workshops...to validate and make sure we have the base definition of a non-fungable token," said Marley Gray, Microsoft's principal architect for Azure blockchain engineering and a member of the EEA's Board of Directors. "As we go through workshops, we will probably find we should add this attribute or this clarification or this example that helps someone understand it."
The organizations that have agreed to participate in the standardization effort include Accenture, Banco Santander, Blockchain Research Institute, BNY Mellon, Clearmatics, ConsenSys, Digital Asset, EY, IBM, ING, Intel, J.P. Morgan, Komgo, R3, and Web3 Labs.
Bringing order to the market
The move comes as tokenization and blockchain face increasingly face regulatory oversight. While the blockchain marketplace remains a bit of a Wild West at the moment, that isn't expected to last; government and non-governmental organizations such as the SEC continue to scrutinize blockchain and the digital currency that flows through it.
EEA Executive Director Ron Resnick said while his organization supports a specific form of blockchain – Ethereum – it is hosting a blockchain-agnostic initiative because it has the infrastructure with program management and other resources. Any company that wants to participate in the initiative can do so without becoming a member of the EEA, Resnick said.
"Standardizing tokens to work anywhere could hold the key to one of the greatest economic opportunities in modern history," Resnick said. "Just like standards that led to the rise of e-commerce on the internet, applying standards to tokenization will enable the enterprise to use tokens to serve as, or provide access to, a set of goods, financial assets, securities, services, value or content through enterprise blockchain applications."
Gray said a token can represent anything from a bitcoin to real estate.
"We live in a reality where customers are faced with having a foot not only in public blockchains but also a foot in multiple consortiums, each of which might be different [blockchain] platforms," Gray said. "So, the framework is built around the presumption that we want to be able to define these things in a neutral way... using real-world terms and analogies, like fiat money, an airline ticket or a concert ticket."
Two types of tokens
Once defined, some tokens could be fungible with interchangeable currency-like properties. Other tokens could be non-fungible and represent unique assets, such as art or a plane ticket. When combined into a "hybrid" token, fungible and non-fungible tokens could open new avenues for digital commerce, Gray said. A hybrid token could be purchased and held by a consumer as a non-transferable asset.
For example, such a token could represent a specific airline flight or concert venue (a fungible thing) and a non-fungible asset, such as a specific seat on that flight or at the concert, Gray explained.
Another example of a hybrid could be a non-fungible token representing a pool of real estate mortgages and a fungible one representing a fraction of that mortgage pool that can be purchased by corporations or consumers as securities.
Blockchain-based apps for real estate now include start-ups that handle foreign investments, property title record keeping, property rentals and tokenization. Blockchain networks that tokenize real estate allow traditional investors and consumers to buy shares of a property and receive a return on rents or mortgages. The money paid for the shares allows property owners to make additional investments.
For example, Polymath, Securitize and Harbor are among the industry's leading blockchain networks to enable assets – such as commercial buildings – to be tokenized and turned into tradable securities.
One start-up, Jointer.io, is focused exclusively on real estate tokenization. But unlike other services, it doesn't offer just one property as shares that can be purchased. It combines a number of buildings in an index, and participants can then buy tokens from that index. The result is less risk and more profit, according to Jude Regev, founder and CEO of Jointer.
"The framework will be agnostic. At Microsoft, we don't have a blockchain. We don't compete, but we want to host and listen to our customers who want to use Ethereum..., Hyperledger Fabric, Corda or anything else that comes along," Gray said. "How do we begin to think about building multi-party applications on top of those things as you have different languages from different platforms, different definitions and no consistency in being able to describe them."
Along with creating a taxonomy to describe what a token is in detail, the initiative will develop a method for attaching meta-data – transactional descriptive information – to a specific token using the token taxonomy framework's syntax and grammar.
Could tokens lead to a cashless economy?
Behind the initiative is a growing cottage industry made up of start-ups that turn real-world assets into tokens to be sold or traded on blockchain networks.
A former Federal Reserve executive believes it's only a matter of time before central banks adopt a form of digital currency that could look like bitcoin and will offer a more convenient and anonymous way for businesses and consumers to buy and sell goods and store wealth.
For example, earlier this year, JP Morgan Chase announced it would launch a U.S. dollar-backed cryptocurrency – a token that would allow it to client to send money to another over a blockchain ledger.
The advent of a government-backed, peer-to-peer (P2P) digital currency could signal the beginning of a cashless economy, not unlike what's occurring today in Sweden. It also may simply complement the modern-day current cash-based system.
"So, cash is really disappearing in Sweden. It's not accepted at many businesses and many banks won't deal with cash anymore," said Rod Garrett, an economics professor at the University of California at Santa Barbara and a former vice president with the Federal Reserve Bank.
John Whelan, chairman of the EEA Board and and head of Digital Investment Banking at Banco Santander, said it appears that in the coming years many different asset classes will be tokenized.
"As such, the Token Taxonomy Initiative will be key to ensuring that this next wave of financial innovation will start with cross-platform standards in mind," Whelan said.