Blockchain Utility Tokens — A Better Way to Buy Cloud Compute and Storage Services for Cities?
As a nascent industry and technology, blockchain is many things. It’s most notable function is the tokenization of digital assets that are fungible or tradeable. Tokens are commonly referred to as crypto “coins” because they can be ascribed a monetary value. In most cases they are the medium of exchange with a blockchain’s ecosystem to pay for transactions or use of applications on the blockchain itself. In other cases coins are the literal representation of some set of data as a token that is tradeable across different marketplaces. Think of airline miles. These are database records of accrued travel on a specific airline by passengers enrolled in the miles program. But, airline miles are not generally non-transferable outside of the originating airline and any associated business partners. You can’t spend airline A’s miles to buy a ticket with airline B or use it as currency to buy drinks at your local cafe.
But, if airline points were tokenized on a blockchain and made available as a utility coin, they are potentially tradable, with their monetary value influenced by a number of characteristics such as the airline’s performance, number of routes and destinations, customer ratings, etc.
What if one or more of these characteristics were to change significantly, let’s say the number of major routes were cut by 25 percent? The result might be a long term decline in the market value of the airline’s reward miles as cryptocurrency, not just a utility coin. This is the downside or reality of tokenization of an asset, the value isn’t fixed, it’s dependent on variables that impact the perception of its value. In other words, loyalty economics reaches a new level of portability and utility.
Let’s adapt the airline miles as a transferable utility token scenario to cloud services. What if there was a token spendable across cloud platforms like AWS, Microsoft Azure, and Google?
Right now cloud providers structure the use of their services with credits. Customers buy an allotment of credits to burn on a platform for development and operation of full stack solutions: applications, infrastructure, and databases. Each cloud hosting environment has its own specific set of operational controls and cost structures too. There are good reasons for IT agencies to employ more than one cloud platform, especially in federated IT ecosystems, but this doesn’t go without additional transactional and support costs. The terms of each contract must be separately negotiated and each platform needs dedicated expertise to configure and administer services for operation. Finally, each platform needs its own budget allotment or dedicated line item and has to be monitored consistently for spend rates. IT engineers can easily oversize the virtual environments or misjudge the volume of data transactions or storage and see spend rates rise instantly and burn through budgets.
Back to the central question, what if blockchain tokens and smart contracts could be applied here? Rather than negotiate and maintain multiple service agreements, contracts and budget line items, blockchains would enable tokenization of individual cloud services. Instead of credits and individual accounts, tokens and the private/public key pairs associated with blockchains would uniquely identify users and their spend on specific cloud services. An IT agency could then buy a pool of tokens for use to unlock and program smart contracts to enable applications, infrastructure and storage on any number of cloud platforms. The IT agency is identified on the different cloud platforms by the public/private key pair used. All these factors combine to create the opportunity for the IT agency to use the platforms best suited to the program or need with one token (of monetary value and technical capability).
While a token for use across platforms provides agility for the customer, this new mode of service transaction presents a new cash flow problem for the cloud provider. As a way to ensure consistency in revenue, cloud providers might insist on smart contracts that would stipulate specific durations of use, potentially locking up a set amount of tokens to be paid back in full or at a discounted rate at the end of the contract to cover transaction fees. The contracts could have code to receive inputs from the platforms that execute procedures to save costs, or conversely meet demand per prescribed terms to spin up new services at set burn rates based on time of day, network congestion, or other priorities and conditions.
