Utility Tokens

Let’s start with the most basic yet revolutionary concept of utility tokens. Many scoff at the term because it is perceived, and correctly assumed sometimes, to be a loophole to get around US securities laws. While this may be true for some , I think the concept opens us to a completely new and previously unavailable framework we must understand.

What is Money?

Money is a store of value, plain and simple. Society has developed a mechanism whereby we can use energy to produce value for the world both as individuals and organizations and then store that value in currency.

Currency provides a tangible measure of value and the state of that value is indicated by the owners of that currency. Currency provides for a far more efficient transfer of value than a bartering system but has one major prerequisite. Those that use currency must be confident in its ability to accurately reflect the amount of value it contains.

Up until the last decade, the only mechanism we had to accomplish this was either through government or asset backed securities.

Then came distributed ledgers.

As we know now, Bitcoin changed everything. We are able to accurately both represent a very specific measure of value and store the state of that value in a distributed ledger. The ledger is verified by widely known algorithms and giving us the confidence required to use it as a currency.

Ethereum continued to build on this concept and allows us to issue cryptocurrency of our own.

Ethereum has effectively white labeled value stores.

This is THE revolutionary concept that must be understood. We have gone from bartering special skills, to storing value from our special skills in generic currency, to now being able to store our value in our own currency.

This is not to say that all tokens have value because there are and will be masses of valueless tokens for now and forever, but all value can now be stored in custom tokens.

Wow. And if this idea hasn’t hit you across the head yet, give it a few days, because it changes everything we’ve known up until now.

So what…ICO’s still stink

Once you’ve digested the concept presented above I should easily be able to bring you to a realization that comparing any utility token ICO to any form of equity investment is an apples to oranges comparison, they are completely different. To dive further into this let’s begin with…

Equity

An organization formed to produce a profit has a limit to its intrinsic value, 100% ownership. We have developed various methodologies to calculate an organization’s monetary value using ratios, relative comparisons, projections, trends, markets, history, gut feelings, prayers, etc.

No matter how you slice it, every company has a cap to its value and when you buy ownership of that company, you’re buying a specific portion of a calculated cap. Now let’s talk about the Texas Rangers….

Texas Rangers

In 2010 the Texas Rangers went to their first World Series. Before that season however, the franchise sold season tickets to their games… pre-selling tickets.

Oh ok, I see where you’re going, nothing new…

Okay, you’re right but let’s walk through this because it’s important. After the Rangers had a phenomenal season, and as they kept a strong roster, season tickets became more valuable. This value increased because the games were going to be fun to watch and also because you had the potential to have tickets for the next World Series.

If that is what you were banking on, then you were rewarded handsomely because they in fact did go to the 2011 World Series. If you wanted to enjoy the experience of a World Series or sell your seats for a profit, and bought pre-sold tickets, you won.

Of course, after the 2011 season, tickets became even more valuable, sold at higher prices, but, as history shows, it didn’t quite payoff. Now you say…

Texas Rangers season tickets and ICO tokens are apples and oranges!

To which I respond,

Why, what exactly makes them different?

And you list some of the following points:

The Rangers have an almost 50 year history in Texas

There’s a stadium to play in

The market is proven

So:

They have an organization with a proven track record

They have the infrastructure

People are going to the games

From there we can easily tie this into our latest high dollar ICO, Protocol Labs, creators of IPFS and their Filecoin.

Protocol Labs has produced tangible and useful technology

The infrastructure is in place

People are actively storing data in it

Now you say, THAT STILL DOESN’T JUSTIFY $200M+!

The IPO apples to ICO oranges

There is a fundamental difference between what someone NEEDS and the value they produce. Does Bill Gates NEED $80,000,000,000? Does Warren Buffet NEED $75,000,000,000? Nobody’s claiming foul about the $250,000,000,000 cash pile the Apple organization is sitting on.

And why is that?? Because it’s not about what they need, it’s about the market they’ve made.

Of course you respond with, but Protocol Labs has done nothing. And that, my friend is, patently false. They have produced a tangible technology which has attracted a market for its product.

They are not selling parts of an organization with a calculated cap value, they are selling product. Going back to the beginning of this conversation, we no longer have to transfer ownership value into a generic currency in order to obtain resources to produce real value. We can now store our future production value directly in our own currency and sell it.

What about the other millions in ICO’s? Well, if you’re buying tokens in a company with no product or market that’s on you.

As far as this post is concerned, a $100M+ ICO can be justified. I’m not asking for agreement on any specific coin offering because I don’t agree with a lot of the market myself, I’m simply stating that things have changed more than we may understand.