Blockchain, Cryptocurrencies, Tokens, ICOs…
Disclaimer: much like a bicycle salesman is interested in that some municipal tax revenues are forwarded to the construction of bicycle routes and banning cars from downtown, I do have the “conflict of interests” in the topic below.
Blockchain, cryptocurrencies, tokens, coin offerings — what’s in it for a normal company with the revenue and the tradition? So far, there are three large strata of people who have reasons to get involved. They don’t overlap. They dislike each other, to say the least. For a company that has a running business with revenue, entering any of those three existing strata is pointless and even dangerous. See who they are in the Appendix below.
Normal businesses have yet to create the new crypto/blockchain club of their own. There are two very different potential paths with the watershed moment at either doing it with or without dilution of equity.
- Without equity dilution: tokenisation of business operations.
- With equity dilution: tokenisation of equity.
A. Path to crypto without equity dilution: tokenisation of business operations.
Tokenisation of business operations is the process of replacing traditional meeting-point interactions with tokenised ones. For example, instead of transferring funds to your business partner through the banking system, you two simply exchange payment tokens without involving any third party. Like cash, but electronically, remotely, with an ability to create an audible legal record. Or, another example: instead of passing the set of accompanying documents for the cargo (which includes creating an online record in a cloud-hosted database), you simply pass tokens from one wallet to another. This is similar to paper in the pre-Internet age but with much stronger authenticity protection and all the conveniences ordinary online records offer. Again, that happens without any third-party cloud service provider.
Avoiding third parties is not paranoia or other sort of mental fixation. It really is a way to reduce the influence of monopolies.
This anti-monopoly talk may sound irrelevant, but look attentively to your particular industry and you will surely see some company or some government agency whose influence can be felt almost everywhere. If hotel operations would be tokenised by the time Booking.com and other OTAs were rising, the commissions spread would be different. Tokenised businesses are much less likely to allow data silos. Should some end-user oriented booking service gain much traction, hotels would be the first to massively co-own it. 15%-20% commission wouldn’t have become the norm.
The same no-third-party-necessary principle applies not only to all ordinary interactions but, more importantly, to something completely new. The unprecedented ease to create and handle authentic tokens allows businesses to incorporate NEW participants, contributors and new types of interactions. Potentially, of course. For most businesses, I have to admit, this should not be expected since everything that had to be invented was already invented. Moreover, an outright tokenisation of a running business is not wise, to say the least. Only some not-very-core business modules should be upgraded at first.
By default, tokenisation of business doesn’t imply tokens should be sold to anyone for profit, used as an investment tool, or within any other arrangement. Tokenisation efforts are likely to give a stock price (if it’s already in circulation) some upward boost, though. Just as any implementation of a new promising technology would do. Yes, we all heard of pretty awkward examples last year (Kodak and few others), but in those cases there probably were clear deliberate attempts to mislead investors. If you do it honestly and right, the stock will deservedly go up.
Tokens may be a way to borrow from your future-self. For example, you can create a pool of tokens that represent the worth of all discounts your business is ever going to grant to its customers. These discounts can be sold before they are actually applied, with value deviation (present value) determined by current supply and demand forces. But, again, this is not (at least, it should not be) the primary purpose of tokenisation. Modernisation, optimisation and, essentially, cutting costs should be the main motivations. One should realise, abusing things is never a good idea, technology-supported or not.
B. Path to crypto with equity dilution: tokenisation of equity.
Tokenisation of equity is the process of pairing a share of stock with an authentic crypto token. Crypto tokens, in their simplest form, are immutable transaction records that achieve immutability through being kept on a fairly decentralised platform. The perceived strength of tokens is in ease of issuance and ease of organisation of circulation.
There’s also a back-current worth mentioning: some people suggest “tokenisation of equity” being strengthened with “equity-sation of tokens” meaning that some decent utility tokens, with real businesses behind them, that suffer price declines may be reinforced with adding company co-ownerships rights to them.
The strongest argument on the meaningfulness of today’s form of equity tokens is about investing in startups (“Do you have $1 million investable capital? Most people don’t, yet want to invest in startups. That’s the value”). Startups may really have easier lives if a hundred-buck investments from Turkey and Pakistan were available for them.
Appendix. Three Existing Strata of Crypto
The first is the Bitcoin crowd: “hodlers”, believers, libertarians, miners, altruistic developers (including those not directly contributing to Bitcoin itself — there are only a few hundred people on the entire planet who have developed another couple of dozens crypto projects that are worth any attention). There are many parasites there but it is the curse of any benevolent community. Generally, this crowd is very forward-thinking and pleasant. Many people think bitcoins and other cryptocurrencies are largely used by criminals. It is not so. Not any more than paper cash (which is easier to handle and leaves much less footprints). If we suggest that recent studies are correct and about 25% of volume is indeed connected to some illegal activities, it only proves bitcoins are operated on Earth, not elsewhere. The natural share of black markets is somewhere around that figure. We should also remember that the real effective percentage is substantially lower because black markets operating in other types of payment tools suffer from much greater friction which affects calculations of shares.
The chronologically second crowd is all about pseudo-assets trading. It is lead by mediocre and provincial business teams who are worth maximum $50k of a capital injection but who could use this recent glitch in the Matrix and collected from around $5M to 50M and even more each. They perfectly know their own low fair price so they heavily invested into marketing to run thousands of their pointless token sales. The outright scammers with no real teams are comparatively low in number and don’t count here because they are sort of useful parasites — they take money from people who would probably be less harm to humanity without extra cash. The real harm comes from people who don’t hide. The huge crowd of clueless speculators who don’t create any economic foundation for anything come along, being simply gamblers-at-heart (pachinko effect).
The third is the big corporate blockchain crowd (supported by IBM, Microsoft, etc.) which explores the technology enthusiastically but narrow-mindedly. This stratum involves many decent people but the entire approach is probably still-born, something like the thing with Intranets in the previous decade. Although recently we can see some promising moves to merge with public platforms which might give birth to something real and useful, so far, it is hard to see how the few “permissioned” and paid-for platforms, run by few companies belonging to the global IT oligopoly club, help a fairer competition through decentralisation — Linux Foundation branding alone isn’t very convincing a factor.