A very common question that many crypto firms today face is “Why do you need a token?” It is a fair question and something that we try to tackle head on. I’ve said time and time again that blockchain is a tool. Blockchain is not a “Sledgehammer.” As Abraham Maslow once said, “if all you have is a hammer, everything looks like a nail.” Right now the world has been given “The Blockchain” and everyone is trying to figure out what “nails” to hammer the blockchain with.

In reality, “The Blockchain” — whatever people mean by that — is much more of a “scalpel”. Blockchain technology should be seen as a precision tool which when used correctly, can prove to be quite powerful in solving difficult problems. This is a theme that we will expand upon at Ethos and will become increasingly apparent as the blockchain industry matures.

In general there are 5 main reasons we have a token which are laid on in our FAQ on ethos.io/faq which are:

  1. Reduce costs for consumers for crypto-related transactions.
  2. Enable low-cost blockchain applications for developers.
  3. Create a scalable micropayment transfer mechanism for all platform services.
  4. Support an open financial ecosystem that bridges traditional and crypto assets.
  5. Enable verified source of funds and identity for transactions through the Ethos ecosystem.

For the sake of transparency and education I will lay out what each of those means here and people can reference back to this answer. Without further ado, let’s jump right in…

Reduce Costs for Consumers

Using USD for transactions generally has many intermediary fees associated with it. Withdrawing money from a bank account, using a credit card or wiring funds all require fees that add up to a significant percentage of the transaction. The transformative power of the blockchain means that for the first time there is a completely open financial ecosystem that has no prerequisites for participation. There are no intermediaries which removes a lot of barriers and costs. To illustrate this, imagine you wanted to buy a diversified basket of assets. You may have to ask an investment advisor to provide suggestions, decide to purchase shares of a mutual fund, have a broker-dealer purchase on your behalf through the investment advisor, have a mutual fund manager manage the money while the shares are held in custody by a custodial bank — not to mention the money being held and transacted through a bank. At each intermediary, there are costs that ultimately are shouldered by the user.

A tokenized system can provide consumers the “market price” of a product or service without the markup that happens through inefficient mechanisms or profit motive. Markets are the most efficient way to allocate scarce resources in a way that is fair to everyone. Uber uses markets to pair riders and drivers and Google uses markets to match advertisers with ad spots to maximize consumer and producer surplus. The Ethos token is designed to match consumers to transactions for the lowest possible cost.

Enable Low-Cost Applications for Developers

In a similar vein to “Reduce Costs for Consumers”, the Ethos token provides prorated access to the Bedrock API. By enabling pro-rated access to an API, there are no over or under charges to developers, and participants in the Ethos Ecosystem can get exactly what they are entitled to. This is similar to an Amazon Web Services model, but even more thinly sliced to the API level, similar to how Ethereum uses Ether gas to power Smart Contracts with the added benefit of eliminating payment risk from the business and the consumer. This allows the ecosystem to operate much more efficiently — basically at the lowest possible cost the ecosystem will allow — and is beneficial to both businesses and consumers. Ethereum’s gas market has shown the power and potential of a computer system that can be “rented out” on a microscopic scale. We took many of the best ideas from Ethereum and expanded upon them for Ethos Bedrock.

Create a Scalable Micropayment Transfer System for all Platform Services

Ethereum, along with the many layer 2 scaling proposals for ERC20, enable highly scalable systems that can build the foundations for payments infrastructure and consumer application rails which are simply not possible in a USD world. ERC20 enables us to fully utilize the security and scalability of a tried and tested blockchain while at the same time providing a unique digital commodity to power an ecosystem. These applications span underserved unbanked populations to high throughput payment and settlement systems. Again, these sorts of applications are simply not possible without a unique digital asset. There is no way for an unbanked consumer to transfer a dollar without incurring significant fees. By using an near infinitely subdividable digital asset along with a micropayment transfer mechanism, any person in the world can be able to send micropayments securely and safely.

Support an Open Financial Ecosystem that Bridges Traditional and Crypto Assets

A huge part of our mission is making the financial ecosystem accessible and connected for consumers and institutions. Bridging the gap between traditional and crypto is an important part of this mission for Ethos. A digital asset simply makes a lot of sense when you want to begin establishing marketplaces that form an ecosystem linking both worlds. As more and more firms join the Ethos Ecosystem and begin operating within it — it becomes increasingly important to establish connections between the different marketplaces to support an all-inclusive capital market that can better serve individuals and institutions alike.

Enable Verified Source of Funds in the Blockchain

A major source of headaches for regulators is the perception that cryptocurrency can be used for money laundering, terrorist financing, drug transactions and the like. Even though there exists this perception, many studies have shown that illicit actors still prefer to use fiat over cryptocurrency due to the linkability and transparency of the blockchain. The blockchain is often more transparent than the existing fiat financial ecosystem, and can be used to create a safe and clean digital financial ecosystem.

Ethos is building standards that will help people stay on the “light side” with crypto and power all the transformative possibilities that crypto promises while at the same time maintaining the integrity of a clean financial system. This includes identity for all Ethos participants. Instead of sending funds to an anonymous address, Ethos users can link identity to funds. We see this starting with a “DNS-like” Wallet domain marketplace powered by the ETHOS token that enables verified users the ability to leverage the plethora of capabilities that are available in the crypto world. Users can register a unique wallet handle, much like a web domain, that will make it easy to receive funds of any kind through the Ethos Ecosystem.

Additionally, ETHOS-VSF is a standard that proposes a way to encode verified source of funds into blockchain transactions powered by the Ethos ecosystem. A digital asset that powers a new, decentralized, inclusive and compliant future is something that should appeal to both users and regulators alike.

This post was inspired by a telegram comment that I responded to! Visit our telegram at t.me/ethos_io and ask the Ethos team more questions to receive information straight from the source. Ethos strives to be transparent and forthcoming with all activity and it is a big part of our mission to drive clarity and education in the industry.