Cryptocurrency technology has been evolving ever since Satoshi released his white paper.  Bitcoin was truly revolutionary and really got people thinking about the possibilities of blockchain technology.  Ethereum introduced smart contracts and offered a platform that dapps could be built upon.  The main use for ethereum has not been dapps, but instead in 2017 it became the new way for startup companies to raise capital.  There were so many different ICO’s that raised billions upon billions of dollars.  It seems like a great way to conduct crowdfunding, but as time goes on ethereum will have to face some uncomfortable realities.  Most of the ICO’s that raised huge amounts of money are nothing more than an idea and a whitepaper.  Many of them do not have offices or working products.  We aren’t even talking about revenue and profit yet since many of these companies are so far away from any sort of actual business.  So as time goes on many of these tokens were sold to the public as a utility token that could some day be used on a successful dapp or platform.  Since many of these projects will never reach a working model, many of these erc-20 tokens are worthless.

The ICO market in 2017 reminded me a lot of the buying stock in tech companies in the late 90’s.  The difference is that when you buy stocks, you are actually buying equity in a public traded company.  This entitles you to a share of the profit from that company.  Buying tokens in a crypto project is different, you have no ownership in the company and no share of any future profits.  Most ICO’s were raising money by selling the public utility tokens, not ownership stakes in the company.  That would be like Dave and Busters raising money by selling their game tokens cheaper than the normal price.  This model is great for the dev team but horrible for investors.  Some of these projects will succeed and most will fail but there must be a better way to go about this.

Projects being developed on EOS are trying a different approach all together.  They are holding a percentage of tokens themselves and then giving away the rest based on how many EOS tokens were held at the mainnet launch.  Once these tokens start trading and a market price is determined, the dev team can then sell tokens to raise the money needed for development.  This is a step in the right direction, but the investors are still buying utility tokens, not a share of future profit.

When I first saw POWH3D and FOMO3D on the ethereum dapp list, I wrote it off as some scammy, gambling type dapp.  I think there is a little bit more here than meets the eye.  POWH3D has a token that uses smart contracts to automatically distribute profit to token holders in the form of dividends.  The only problem with this the games are not engaging and it is built on the ethereum network.

EOS BET is a virtual casino and so far they have one dice game that is up and running.  This project issued BET tokens but you do not need these tokens in order to play their games.  So what is the point of holding BET tokens?  100% of profits from all their games will be distributed to token holders.  So how does the dev team make money?  They held 30% of these tokens for themselves.  How do we know that 100% of the profit will actually be distributed?  That is where the blockchain comes in.  Smart contracts are set up so that all of this happens automatically and cannot be changed by humans (including the dev team).  So now we have a token that will have a market value like any other token out there, but it will also be paying out dividends for the life of the smart contract.  The cool thing is that you can you use block explorers to check in real time the revenue and profit of the smart contract.  This would be like logging into the bank account of a public traded company to see what is really going on with each transaction.  If we see more tokens that are coded with dividend payments as an extra feature, we will be able to calculate yield percentages as well as P/E ratios.  Would you rather buy a utility token, or a dividend token that guarantees you a percentage of profit forever?  I believe that we are going to see huge market demand for tokens that offer passive income.  Dividend paying stocks have been one of America’s favorite investments since the early 1900’s.  Cryptocurrencies are new and different, but the people buying them have the same psychological tendencies as previous generations.

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Responses

  1. Guido Ciburski www.snowden-coin.com

    Let me add this: Profit participation will lead to the same SCAM as before…cause Profit = Revenue MINUS Costs and Costs can be defined by the company until Profit comes down to 0. The real participation is REVENUE-Dividend. And here its crucial how the Dapp is connected with the revenue generating website or process. We had the same problem with our coin and work like this: We display any single payment tansaction visible on the website, so an investor can pay in a test of 1$ on the website and can directly ocntrol , if its booked in the ledger. So he can be sure, that all revenues are registered. Than we (manually) pay 24% of all revenues (once in a year to save gas) to all circulating coins. Let me know, if there is a more elegant way to connect website revenues with Dividend-payment Dapps. We would be happy to implement that, to give investors a better feeling and more security. Another problem is: as soon as you pay out dividends your coin will be classified as security asset coin. In most regulative areas its treated like a security asset with a lot of consequences not easy to handle by an average ICO Startup. Best Regards Guido Ciburski, http://www.Snowden-Coin.com

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    1. Todd Post author

      Thank you for your comment. You bring up some great points. Using a revenue based dividend is completely feasible with the use of smart contracts. I would personally like to see a dividend model that pay’s out in real time in fractions of eos. EOS having no fees makes that possible. As far as the dreaded security token categorization, I will write my next article on that topic since it needs to be addressed and discussed.

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  2. Michael Dexter

    5 stars. In this article you are literally wording what I was about to write because I definitely share the same point of view you do. So you saved me the work, 😀 , couldn’t do it better, it’s brilliant! Thanks a lot mate 🙂

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