How to Fund a Blockchain Project
There are many interesting characteristics about the blockchain; among the most fascinating to me is its nascence. The blockchain is young, just now a few months away from its 9th birthday. For a point of comparison, it’s been nearly 50 years since the Sigma 7 computer at UCLA was connected to three other machines forming the first iteration of ARPANET, a early forerunner of the modern internet you’re now using to read this post.
Early diagram of ARPANET, courtesy of Alex McKenzie (via Scientific American)
As the Internet began its commercial journey in the late 1980’s, many questions were asked and answered regarding how to best bring business to this novel technology. As the bursting of the dot-com bubble hopefully illustrated, some of these answers were wrong. In many ways, the proliferation of new token projects? — ?kickstarted by the launch of Ethereum? — ?can be viewed as the early commercialization of the blockchain.
As an information technology, the blockchain has a wide array of properties, some of them good, others bad. I have recently taken to summarizing these properties in the following statement:
The blockchain is slow, inefficient, and expensive. Everything that can be done without the blockchain should be done without the blockchain. Only goals achievable through no other means should make use of the blockchain.
The property of the blockchain responsible for this conclusion is its decentralized structure. The blockchain is uniquely capable of operating without a central control or authority. When looking towards the commercialization of the blockchain, it is exactly this property that should be our greatest source of excitement and hesitation. On one hand, we can accomplish things that could never have been done before, but on the other, we must ask how a commercial enterprise can be undertaken if not through exclusive ownership and control exercised by a profit-seeking business.
Like many others currently involved in this space, I believe that the answer to this question involves a model which includes a token sale (or initial coin offering). While token sales can vary greatly in form and characteristics, they all possess the same basic structure. The team behind the project sells some sort of digital asset to be used in connection with the blockchain platform being developed. Drawing heavily on my experience with my own blockchain project, Topl, I will attempt to outline the necessary considerations for designing and executing a successful token sale.
I hope that this may serve as at least one useful perspective for others looking to launch blockchain projects as well as those looking to participate in token sales. Please note that token sales involve many complex legal and financial nuances that will not be considered in detail here. I am not a lawyer, and these thoughts are entirely my own and should not be interpreted as legal or financial advice of any kind. Before conducting a token sale, consult with lawyers and tax professionals familiar with the specifics of your endeavor. With that in mind, let’s dive in.
Should I be using the blockchain?
Before deciding the properties of a system’s token and its sale, we must first ensure that a project should be undertaken using the blockchain. Solving this first quandary requires an understanding of the most important qualities of your envisioned system and asking if these qualities can be provided best by the blockchain.
In the case of Topl, we identified open access, transparency, resiliency, and the ability to eschew bias towards any particular jurisdiction as key properties of our system. Based on our understanding of and previous experience working with the technology, we were confident that these qualities could be best provided to us by the blockchain.
What will my token be used for?
Having established that a project should be built using the blockchain, we now determine whether we need a token and, if so, answer the questions: “What does this token do? What value am I really selling here?” There are different answers to these questions, so before looking at how to make this decision, let’s just recall some of what’s already been done by various blockchain projects.
