2017 is shaping up to be the year of the ICO. With more than $350 million USD already raised for various projects, but many speculate that the amount of funding toward ICO projects will reach more than $1 billion this year. This means that the already packed markets will be flooded with hundreds of more projects, each with their own cause and goals, which seems like a lot of take in, right? Well, while at the gym Saturday evening, I viewed a very interesting podcast on ICO's, and one of the interviewees had a great way of looking at not only upcoming projects, but coins in general: Usage tokens vs. Work tokens.
There are a lot of great projects coming out this year and those of you who are just getting started may feel like you're about to miss out on some big opportunities, or are just plain under-equipped to start investing. Though I am still working on my post on how a venture capitalist could view and analyze ICO's, I wanted to take a break to share this simple way of viewing coins which may serve as a tool for rapid preliminary evaluation and as a way to build macro-categories in your portfolios.
Usage tokens
Usage tokens are exactly as you would expect. They are a coins which store value when used or exchanged for material goods, services, or other coins. These token are generally perceived as currency and are intended to be used solely as a method of payment. I, like many investors, am excited about the growing number of use cases involving these types of tokens, and am sure that we will see and hear many of more in the near future.
Examples:
- Bitcoin(BTC) - The gold standard and grand daddy of all cryptocurreies. If you haven't heard of this one then you've probably been under a rock, or in North Korea. If the latter, then congratulations, its now impossible to avoid, especially on steemit!
- Litecoin(LTC) - Designed by former google engineer Chris Lee as "the silver to bitcoins gold", this coin has received a lot of attention in the past few weeks and will almost certainly be the next usage token to hit bitcoin ATM's.
- Ripple(XRP) - This centralized a ultra-regulated coin has been one of my portfolios highest performers from May first to present, and has already been accepted as legal tender in Japan.
- Monero(XMR) - Buying something sketchy? Well, it's none of my business, and the creators of Monero feel that it's no one else's either. Ranked 10th on coin market cap by market capitalization, this one was designed with privacy and anonymity in mind.
ICO Risks:
The main risk that a new currency may face is that they may not gain mass market acceptance, which would mean that they will not likely reach solid market cap rates and experience massive volatility swings, keeping potential investors away as a result. One of the best examples that comes to mind is Torcoin.
Work tokens
Since you're on Steemit, you're probably familiar with the concept of work tokens. These are tokens which are earned by performing an action like generating content, making videos, or allowing other groups to utilize bits of unused processor power, etc. Work tokens generally go up in value as their products rise in demand and can be thought of as crypto’s with utility which can also be exchanged as a currency. There are numerous types of work tokens out there, and some that I am very much looking forward to in the months (and years) to come, as this is sure to be the largest category of cryptos:
- Steem(STEEM) - I think that this one has massive potential, given that a rapidly expanding group of content generating users are the force which drives both market acceptance and value. It will certainly be exciting to see where this one goes.
- Ethereum(ETH) - To tell you the truth, I was a bit hesitant to include this one here because of the users abilities to create smart contracts for payment. However, Ether was also created to serve as a platform to build applications directly on the Ethereum blockchain.
- Filecoin - The gents at file coin have created a competitive bidding platform to monetize the unused space on your hard drives in a safe, encrypted and lucrative way. This coin hasn’t been released yet, but this is entrepreneurialism meets innovation meets utility at its finest.
- Golem(GNT) - According to their website, Golem is a global, open sourced, decentralized supercomputer that anyone can access. It's made up of the combined power of user's machines, from personal laptops to entire datacenters. This will be particularly useful as High Performance Computing(HPC) continues to prove its necessity in virtually all STEM applications.
ICO Risks
Although there are the same market acceptance risks which plague the usage token category, the biggest risk that I feel that work token projects face is their follow through. Investing in these tokens is much like investing in a start-up, in that they have great ideas but may not deliver due to unforeseen circumstance or overly optimistic market forecasts. If a work token cannot perform the work promised, then the token is valueless and so is your investment.
Conclusion
Though the risks are similar in many ways, the drivers of each token's value are very different. Where the Usage tokens may depend solely on market acceptance as tender, Work tokens depend highly on whether the product or output is accepted, and valued in some way by it’s users.
Either way, I thought that this was a great way of viewing and creating macro-categories for cypto investment portfolios. If you feel that you have a better or even different way of looking at these things, be sure to let me know in the comments below.
Planned articles for the next 14 days:
- ICO advice from a Venture Capitalist (Follower Request)
- Paper Wallets (Follower Request)
- VIVA Analysis (Follower Request)
- Tezos Analysis
- Segregated Witness(Segwit) : Friend or Foe?
- A Kraken ate my gains...
- Stellar Lumens(XLM) Analysis
- Dual-Citizenship and Banking in Panama
- Rich vs. Wealthy
- What the US is doing wrong, and what it means for Cryto’s
- Bitfinex : In Depth Review