Much has been written about Initial Coin Offerings (ICOs) and the Cryptocurrencies that they have created. Now we are beginning to see this New Asset class mature and evolve. Regulators internationally cannot agree how to classify Cryptocurrency — often referred to as “Tokens” — ie is it a Currency, like Dollars, Euros, Yen or Sterling? Is it a Security like a bond or an equity? or is it a Commodity like gold or copper? The conundrum is that a Token can be all three and more.
For example, Tokens are not just being used to raise capital for new business enterprises. Local authorities ie The Hull Coin in the UK and central governments abroad ie Turkey, Singapore and Iran are looking into how Tokens could allow them launch their own digital currencies in order to offer them more control over where money is in their economies so improving tax collection. These organisations see potential in blockchain technology which underpins many Cryptocurrencies because the transaction and encryption ledgers of a digital currency leave an indelible audit trail. This could potentially help reduce fraud and combat money laundering also reduce the size of the black economy. The Bank of England recently said “distributed ledger technology ( Blockchain) could permanently raise GDP by as much as 3%,due to reductions in real interest rates, distortionary taxes and monetary transaction cost”
Meanwhile, Tokens are also being used as Digital Loyalty Schemes, that is as a traditional customer-relationship mechanism. Commercial organisations today are constantly vying for their customers’ attention, using all types of marketing, promotions and advertising to get it. ….if a traditional, trusted brand you know and love launches a Cryptocurrency, as a token-based loyalty scheme, you are more likely to pay closer attention to that brand and may well give them extra time and money using their tokens.
In the coming months and year, we are likely to see many global brands launching their own tokens, rewarding their customers, building their communities. Business executives have known for years the importance of looking after their existing customers — hence the $300 Billion p.a. loyalty scheme market in the US alone!
To counter concerns from regulators who are inclined to see ICOs as potentially speculative assets, a new phenomenon known as “Airdrops” has arisen in 2017. Airdrops can be compared to the freemium model — individuals are given early stage free ‘alpha access’ to a product (which is eventually monetized) — to help build a community, loyalty among users in other words to help generate on-platform network effects which then drives demand for the underlying token. It’s like a Digital voucher targeted at early adopters to try a platform its products and services and validate its legitimacy.
So if we are going to see more tokens being launched what are some of the some technical matters you may wish to consider before you buy or launch a Token:
· Who are the professional firms advising an ICO issuance eg the lawyers, accountants?
· Which bank are they using?
· Which Crypto exchange are they listed on?
· Do you understand their business plan?
· Has the management got a reputation worth losing ?
· How are any conflicts between Shareholders and Token holders to be handled?
· What is the budget for the ICO?
· Is the Token a Security or Utility? -Increasingly regulators are classifying ICOs as security tokens and so looking for them to comply with existing securities legislation. In the past some ICOs have tried to argue that their token is a utility token ie is designed to only be used get access to goods and services, but beware Utility Tokens are almost as rare as Hens Teeth!
· How are you going to do KYC and AML?
· What jurisdiction is the ICO being launched in?
· What is the Pre and Post Marketing strategy to maintain interest in the Token-this requires specialist marketing skills and understanding of social media and digital community building skills?
Tokenomics has created a New Asset Class. It is changing the way companies raise money, look after and interact with their clients, staff and suppliers, and it is changing how governments can take control over the money supply. Keep your eyes peeled as potentially it is going to impact on you soon!
CEO TeamBlockchain Ltd