ICOs: From Asset Ownership To Economy Ownership
People have been, and always will be, hungry for new ways to own a stake in new businesses to share profits. Ownership innovation can never be stopped.
Asset Ownership → Business Ownership
A few centuries ago, people were only able to individually or collectively own a land, a ship, or other physical assets that made them money. But with the developments of trade with East India and to reduce the potential risks of losing all their money, ship owners started to raise money form investors on a per voyage basis(to pay for the crew and other expenses of the trip) for a share of the voyage profits.
This has later on evolved to forming companies that own multiple ships and has shareholders. Then people started to trade those shares in what was basically the first stock exchange in history, and later on, the first modern bubble, The South Seas Bubble. Company founders were selling shares of their companies, that were also traded between investors, all before even the first voyage of their companies! Sounds familiar? Soon enough, the bubble burst, and regulators at the time banned issuing stocks! Again, sounds familiar?
But then the true innovation emerged out of the chaos. The innovation was introducing tradable stocks as a new form of business ownership. This innovation lead the way to creating stock exchanges, IPOs, and then many other financial products.
What basically happened was for people who are not rich enough to buy / or not experienced enough to run, a money-making asset, for the first time, they were able to own a small stake of a business that buys those assets, and to get them a piece of the profits those assets can make.
Business Ownership → Economy Ownership
Cryptocurrencies, is nothing but an evolution of ownership. (Note: I am not talking about equity tokens here. Equity tokens didn’t introduce a new form of ownership, they brilliantly solve a different problem, but they are not the focus of this post).
Just like the ships and voyages to East India, founders of new open source projects needed a way to raise capital from the crowd to pay for the team (crew) and other project expenses (trip). So they utilized the concept of digital currencies (cryptocurrencies or simply coins, whither on blockchain, Tangles, or Hashgraphs) to raise money from the crowd via an Initial Coin Offering (ICO).
The coin in this context is considered a utility coin to buy/use the project’s product or service. In return, crowd investors will earn money when the value of the currency appreciates over time as more people start buying this project’s currency to buy/use the project’s product or service.
Because history repeats itself, many founders started selling coins of their projects before even writing any lines of code, and as a result, regulators have banned cryptocurrencies in many countries.
Yet, this innovation has continued and it has extended to other types of businesses. It offered an alternative to the expensive and complicated IPO process for public companies, and the expensive venture capital funding for private companies.
This new innovation offered solutions to new problems. For example, to own a share in a private company, you need to be an employee benefiting from the company’s stock option pool, or an angel or venture capital investor who have access and enough capital to invest, but with crypto, you can.
Another problem with both public and private companies is fractional shares! Normally you can’t buy a fraction of a stock in Amazon or Google or Berkshire, and you can’t invest all of your small portfolio in just one of a few companies. You can do this indirectly via an ETF (Exchange Traded Fund), but still you don’t really own a stake of the business, with crypto you can own fractions of a coin.
What basically happened was enabling people, (who are not rich enough to invest / or not experienced enough to start a money making project/business), to own a small stake of those businesses’ economies (not equities), and to get a piece of the value/wealth created by them, (not in the form of dividends, but in the form of value appreciation of their coins).
