There is a difference between cryptocurrencies and tokens.  Cryptocurrencies are used mostly to transact value.  Bitcoin, bitcoin cash, litecoin, nano, dash, monero are all considered cryptocurrencies.  They are usually a proof-of-work design and have a limited supply.

Tokens are a whole different animal.  Anybody can use ethereum or EOS and create any quantity of a unique token using a smart contract anytime they please.  This was the catalyst for the ICO boom we saw in 2017.  Savvy crypto users realized they could simply create a token out of thin air and write a short document to try and give it value.  Since these tokens are digital property that can be traded, they ended up on exchanges and discovered a real-world USD price.  These development teams are privately owned business but they are issuing tokens that trade on public exchanges in order to raise capital to fund their endeavors.  This is a very interesting startup funding model since it gives nearly all control and rights to the token creators, not the token holders.  It may seem like the team’s interests are aligned with the token holders because everybody wants to see the price go up, but we are all forgetting one very important business detail:  profit.

Now hold on a second, some of our younger investors might not understand the concept of profit.  In today’s tech environment we have seen multiple mega corporations that have practically zero profits.  Amazon, twitter, uber, snapchat are all giant experiments to see if a company can keep reinvesting revenue and keep growing forever.  The explosion of erc-20 token investment reminded me of this new business model that can be simplified down to three steps.

  1.   State your intent on how you would like to see your project turn out.
  2.   Receive massive amounts of real money.
  3.   Try to build your concept and become profitable someday…..maybe.

I believe that 95% of ICO crypto projects will never have a working product.  I also believe that out of the remaining 5%, only a tiny fraction of those projects will actually see real world profits.  It is hard to run a business.  Look at restaurants, it is extremely difficult to open and run any type of restaurant.  It is even harder to make that restaurant profitable.  Many crypto teams are not even thinking about things like cash flow or profit yet, they just want a minimum viable product first.  After that, getting some actual users would be a huge milestone.  Even further down the line, they will have to balance income and expenses.  Not easy to do, but possible.

What happens to the lucky few projects that make it through the gauntlet and actually make money?  Who is legally entitled to that money?  Does that money have to be reported?

Since most projects are privately owned and the tokens are simply utility tokens, the company can keep everything.  They can skim 100% of the profits and token holders have no rights to that.  This is the exact reason why people used to invest in common stocks, for a share of the profits in the form of dividends.  Dividends were a way for a corporation to share profits with its owners, the shareholders.  Crypto teams have no obligation to do so.  The utility token may go up in value on the exchanges and you could sell it for more than you paid for it.  That is a profit to you if you got in early enough, but it should not be confused with the profits from the business itself.  If a business I invested in becomes profitable, I want to hold that company long-term and benefit from that cash flow, not always looking to speculate on the wildly volatile price.

I want to see more tokens created as security tokens instead of utility tokens.  They can use smart contracts that specify all the details of the profit sharing model they choose.  I want to see a security token that pays out dividends as the profit is made second by second instead of monthly or quarterly like stocks.  This technology was made to do just that and also provide pure transparency in the process.

The crypto industry is in its infancy. It is so young and immature that everybody is figuring things out as we go. Anybody that wants to create a business in crypto should be focused on profits and dividends.  The days of retail investors throwing hard earned money at whitepapers is quickly drawing to a close.  Teams need to offer more if they want their projects funded.  This is what separates the good ideas from the bad ideas. Capitalism is an economic model that allocates society’s resources in the most efficient way, we should use it. Concepts and philosophies are great and all, but profit is what pays the bills and makes the world go around.

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Responses

  1. DLK

    A real world look at what it takes to make money in a competitive market. It’s good to start seeing work where the “crypto society ” is starting to think what it will take to get profitable projects off the ground that are meeting commitments to the hloders…

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  2. GuyG

    Yes. Buying a standard Electric Company stock on the stock exchange will produce more passive income than most ICOs. From an investment standpoint, there needs to be a way to calculate the future rate of return for crypto tokens. I’m buying almost on pure faith.

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