I am sure by now, you may have heard of Tokens, Crypto-Tokens, Native Tokens or Crypto-coins terms which are fuelling people aspirations to get quick rich.
Let’s see few real world concepts/ schemes which we are familiar with before we see how these tokens are very different than any of those things.
You may be familiar with rewards/ loyalty points, special passes which incentivize consumers or stakeholders for certain benefits and provide privilege rights for certain services/ actions.
Here are few well known examples
Amazon Prime Membership: Receive all the benefits of Amazon Prime including free shipping for eligible purchases, unlimited streaming of movies and TV shows with Prime Video, and the ability to borrow books from the Kindle Owners' Lending Library on discounted rates.
World of Warcraft: One can do three things with a Wow Token: Buy one with money from the in-game Shop, then sell it in the Auction House for gold. Buy one with gold from the Auction House, then use it to add 30 days of game time to your subscription.
Air Miles: Airlines reward you with points each time fly with them, and you eventually build up enough points that you can redeem for incentives, such as free or discounted tickets or ticket upgrades.
None of these provide real monetary rewards which you can en-cash and transfer to your bank or pay for services of other providers. These can be classified as closed or semi-closed rewards programmes.
On the other hand, there are many investment schemes where one can invest for capital appreciation or periodic returns like stocks, bonds, mutual funds, FX, futures & options etc.
Stocks give you a share of ownership of a company with a profit sharing right and certain stock volume allows one to participate in key decisions of the company.
Established companies launch IPO (initial public offering of stocks) to fund their market expansion & growth plans by publishing their prospectus with applicable disclosures & forward looking statements. Here is an example … Net Link Trust is the biggest IPO in Singapore in six years and is expected to raise about S$2.3 billion in fresh capital. NetLink Trust is the fibre broadband business unit of telco SingTel.
Start-ups or emerging businesses often go to Angel Investors, Venture Capital, Private Equity and crow-funding options to raise capital required to build new products or platforms.
Many Start-ups have used Kickstarter (world's largest funding platform for creative projects) to raise funding by offering special prices for their products & services. This also allows to get early adopters for their products and services before products mass rollouts.
Central bank and market regulators watch all public funding activities offering investments or regular returns. All firms engaged in activities under this category need to abide by existing capital & investment management laws of a given jurisdiction.
By now you may have noticed, key properties of reward systems & investment instruments while one is largely closed loop system offering usage while another open to trade on listed exchanges or OTC.
Now we look at Crypto-Tokens which are used by Blockchain based systems to grow their user base and to accelerate their platform operations thru network effect.
Well-known open-source systems, Bitcoin & Ethereum have used crypto-tokens successfully for their platform development & operations growth. Bitcoin, now has a total market value worth of $78B and Ethereum has a total market value worth of $36B.
While bitcoin token is used as crypto-currency allowing global money transfers peer to peer without any centralized mediator, Ether is used to pay for gas required to execute smart-contracts on Ethereum network. Ether allows owners to participate in Ethereum network operations.
Ethereum ERC20 Token Standard release allowed new firms to write smart contracts which can generate specialised tokens for their projects on Ethereum network. These token can provide access to a utility, shared ownership of digital asset or privilege rights for certain actions depending on the project objectives.
All new projects require contributors (read developers) and users to grow their base so tokens often provide usage & work contribution rights to token buyers/ holders.
ICO (Initial Coin offering) is often done by a start-up which has a base product & platform ready (not on paper alone) to make it better or grow their user base. Tokens should be thought of primarily as a product feature rather than a funding mechanism.
New platforms/ projects communities are bound together by their cryptographic tokens and transparent rules coded in software and community grows with network ownership effect. Many projects are underway to setup Exchanges Services for easy inter-change, trading & transfer of these tokens.
Start-ups launching ICO need to be completely transparent about risks involved, disclosure of vested interests & forward-looking statements. Here is the sample of White Papers released for ICO.
If you already got an invitation to participate in ICO, Pl. remember one need to carefully study these proposals & check promoters & founders credentials to recognize where an old wine is being served in a new bottle. :-)
New token base digital economy, can transform global markets forever redefining assets/service ownership, transfers & usage in much more efficient ways. Amazon, Uber, Airbnb has shown what value can be delivered thru efficient means globally. Token base economy can transform shared economy business model to next level offering these benefits to much larger user base globally thus enabling a truly inclusive world.
I would love to hear your views about tokens and potential areas which can be transformed by their use.
Feel free to drop me a note at LetsTalk@JaiveerSingh.com
Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official position of firms, Author is associate with.