What I have learned from assisting 6 successful ICOs about Tokens and their utility
In this article I would like to challenge common understanding of Utility Tokens.
I believe that this term is overrated and misleading and it is creating lots of confusion and it will harm many investors and ICOs in the future.
Being a Solidity Ethereum developer I’m frequently contacted for smart contract development.
For the last 6 months most requests for my services are in the area of crowdfunding contracts and ERC20 token contracts.
While working on the technical ends of the ICO preparation, I’m also participating in other meetings related to fundraising concepts, tuning whitepaper, finding strategic partners, building the team, working on the prototype, creating KYC requirements, building website and other business building related topics.
Although most every project can benefit from using blockchain, not every project has a need for their own token.
While I understand that raising money through ICOs is an attractive method in itself since it does not require expensive audits and fulfilling of requirements of regulatory bodies, creating a token whose only utility is to use it when accessing the platform is a very weak argument.
Teams are struggling with their attempts to clearly define the “utility of their tokens” and the necessity of this token to access their services.
Most of the time ICOs simply explain that their platform will offer their services through the token they have created and this will justify need and demand to use their token in the future
It is much like saying that you would need Apple shares to buy Apple products.
In my opinion the token will be only in demand and useful if services which the platform offers become widely adopted.
Forcing anyone who wants to use the platform to access it through its token, might actually slow down the adoption of that platform.
Let me show you real life example...
Eg. amongst other uses, gasoline can be used to power engines.
So now someone offers me a car and says, in order to use my car you have to buy gasoline which is produced or is provided by me.
Now I as a customer look at it and I can see that I can buy cheaper gasoline at gas station around the corner.
Do you see now where I’m going with that?
If I need your token to use your system but in reality your service could be offered through any other token like e.g. already popular ones, your token doesn’t provide any utility. This is just an attempt to apply the same idea to a copy of what already exists and hoping that your token one day will get popular enough and you will be able to build on it.
In order to provide your token with real utility and future value, come up with an idea which doesn’t exist yet and can become a platform for others who can speed up adoption of their own ideas when utilizing yours.
In my view tokens should provide some desired functionality which solves some problem or creates some opportunity, which is not available through current technologies yet, or facilitates access to some idea which is currently provided by various third parties.
If one creates a system which simply replaces another system and the only difference is that one requires their token to access it, than this token doesn’t have real utility!
Startups relying on token which only mirrors others, will not reach the required adoption levels in spite of the fact that it is using blockchain as its underlying platform.
Very few people know today what blockchain is and even less know how that could improve their lives, meaning that people will be not just adopting some new platform because it is on blockchain and has its own token.
To show you that I’m not just complaining and discouraging startups from creating blockchain applications with tokens, here are some examples in my view which have good utilities.
- Voting system requires token to assign voting power to its owner.
- Token tracks ownership.
- Token protects digital assets.
- Token removes mediator and speeds up the process.
- Token is used for reputation system to assign levels of approval.
- Likes on social media and forums can be used as tokens.
- Betting on items.
- Used on gambling and gaming sites for scores and losses.
- Loyalty platform.
To sum it up.
If you are looking to develop successful blockchain startup based on its token, spend more time on analysing your idea and look back at other successful projects.
For example Bitcoin was a first concept implementing blockchain technology with its consensus mechanism (PoW) and using encryption for security.
Further coins like Dash or Monero brought Proof of Stake and more anonymity.
Ethereum added smart contract capabilities and easy token creation mechanisms.
Golem is working on utilizing free computer resources to provide high computer power and fast rendering framework for those who need it.
Filecoin wants to offer way to store files in distributed fashion.
Steemit rewards its members with new coins for creating useful content rated by its community.
All mentioned projects in addition to providing some utility, are rewarding their users through either new minted coins or they will pay their members for providing their resources to the platform.
Build exciting revolutionary new projects and you will be amazed where it takes you.
I want to hear your ideas…