As a crypto investor, in 2017 you felt like you were in the days of the 19th century gold rush.
The market skyrocketed and you could make a profit practically no matter where you were invested. The so-called ICO (Initial Coin Offerings) were also very lucrative. ICO is a new type of corporate financing, comparable to the first issue of securities on the stock exchange. Instead of company shares, tokens are sold.
This has advantages and disadvantages. One disadvantage is that with the purchase of a token, one usually does not acquire voting rights in the respective company and often does not receive a dividend. If the token has a function in relation to the product or service that the company offers (this is called a “utility function”) and the company is successful, the price of the token often increases. At the same time, however, this is also a risk. Most of the ICOs issued in 2017 have not established themselves on the market in the long term and are almost worthless today.
Why do we still think that tokens and ICOs are a good new form of financing for young companies?
To understand this, we need to take a closer look at the current situation. When a company is set up, it always requires a relatively large amount of seed capital at the beginning. It is usually not so easy to find this and many founders already fail because of this.
In addition, a certain “critical mass” and number of participants (customers) are always needed before the business model really gets rolling.
Often a young company is financed by “venture capital” (equity or venture capital). It is difficult for the general public to invest in such start-ups at an early stage.
Companies that fail to find a major investor at an advanced stage of company development tend to fail in the medium term.
If a breakthrough is achieved in a company financed by venture capital, the founders often make an incredible profit. Well-known examples are Snapchat, WhatsApp, etc. For other projects it is incredibly difficult to compete with these companies that are accepted by the market. For example, the topic “search engines” is occupied by Google. Most of the time there is one big winner who takes it all for himself.
Many of these points can be improved through ICOs and ensure that the general public can get involved early on in a young company and thus potentially make more profit.
Using tokens instead of securities has some advantages. Tokens can be sold easily and directly over the web worldwide. Tokens are very easy to “move” and exchange. They can also be programmed. For example, it can be defined under which circumstances the token can be used. For example, only in a certain shop if desired. With tokens, dividends can also be easily distributed to the holders; also everything online.
Currently there is a conflict of goals between the employees, customers and investors of a company. The customers want a good product at the lowest possible price.
The investors want maximum profit. The workers usually just want to do something useful and have their “peace”. All parties want different, mostly contradictory things.
With block chain companies and the use of tokens there is a greater synergy. Every customer who uses the service or product of the company is also an investor. In order to use the service of the company, you need the corresponding tokens.
Customers are also more interested in the success of the company, because they then also make a profit. Customers thus increasingly become the advertising media of the respective company.
Employees are also paid with a certain percentage in tokens and are therefore rather “part” of the company. If you work in a token network, you work for yourself and at the same time for the network.
Token networks and ICOs favour being an early user. You can also start with a small amount of money, from anywhere in the world, and there are no major barriers to entry. Companies can also finance their ideas and solutions without a major investor or venture capital.
If the value of the company and the token increases, all token owners have more profit.
Important: Before investing in an ICO or STO (security token offering) and acquiring tokens, a thorough and detailed research (due diligence) should be carried out.