Ethereum's Vitalik Buterin On ‘Tokens 1.0’

Large-scale Ethereum hackathon ETHWaterloo has just concluded. The creator of Ethereum, Vitalik Buterin, made an appearance in his former university town of Waterloo, Canada, and offered his thoughts about one of the ecosystem’s most interesting phenomena, tokens.

 “It is an established fact that ninety percent of startups fail,” said Buterin when moderator William Mougayar asked if there is too much emphasis on tokens in the ecosystem right now. “And it should also be an established fact that ninety-percent of these ERC20s on CoinMarketCap are going to go to zero.”

Buterin’s sobering remarks were delivered from the nineteenth century Seagram’s whiskey distillery, where the panel was held. His comments regarding tokens come at a time when cryptocurrencies are beginning to take their place in larger markets as a new asset class, with traditional financial products like derivatives attached to them.

“This, basically, is tokens1.0,” remarked Buterin, surrounded by antique whiskey barrels. “There are some good ideas, there are a lot of very bad ideas, and there’s a lot of very, very bad ideas, and quite a few scams as well.” Buterin believes that the next phase of token development, something he calls “tokens2.0,” will benefit from the current rudimentary experimentation with tokens. Moreover, Buterin seems to believe a certain amount of maturity will be gained once tokens1.0 has run its course and disposed of the hype surrounding token price discovery. “I expect that tokens2.0 and the kinds of things that people will start building in 2018 and 2019 will generally be of substantially higher quality. Especially once we start seeing what the consequences of the first wave of tokens are in the medium-to-longer term ... What is a good role for them and what is a role that doesn’t really make sense?”

Although Buterin divulged that he is “happy” about the amount of experimentation represented by the variety of tokens available, he also expressed trepidation about the amount of attention related to tokens which have sizable token offerings. “For example,” continued Buterin, “people talk a lot about three or four projects with $200 million ICOs and so forth but there is also the long tail of much smaller projects that often do very interesting things that we often just never end up hearing about.”

The central theme of Buterin’s response was that tokens are young and not necessarily based on fundamental economic principles yet. Buterin continued, “I think part of this actually comes from the fact that these tokens don’t have sensible valuation models. Basically, if you try to economically model the idea of tokens being valuable as a medium of exchange, you start to realize that it’s a very multi-equilibrium game. Basically, tokens maintain their value if people want to hold them. In general, when you have a new industry and you have this early stage 1.0 period, lots of people try different things, and lots of people try lots of things that just make no sense whatsoever. After some time, the market does mature … I personally do think it is coming but there is going to be a process involved in getting there.”

These remarks from Buterin might seem like negative criticism directed at the cryptocurrency community that has built its tokens on the platform he incepted, but the healthy dose of realism might be just what is needed to keep the eyes of the ecosystem focused on the benefits of developing decentralized technologies for reasons greater than the value associated with their related tokens. In the Wild West of token offerings, it’s nice to see one of the pioneers of decentralization focused on fundamentals, truth, and responsibility.