The following article is an exclusive contribution to CoinDesk’s 2017 in Review.
It’s pretty clear that 2017 was the year of the token.
Whether you’re reading the news, attending a fair or simply minding your own business working in your preferred cafe , you don’t need to venture far to listen to someone talking about another token sale. There are now quite 1,000 different digital tokens.
Keeping all this in perspective, it’s no shock to anyone that the crypto community faces ever-increasing scrutiny, with regulation in its various forms stretching from China to the U.S. the most important common denominator within the argument around cryptocurrency is whether or not the tokens in question truly do have an underlying utility.
The simple fact is that a lot of tokens don’t…
A recent article from Bloomberg reported that of 226 ICOs and token sales analyzed, only 20 of the corresponding tokens were actually utilized in the running of their networks, demonstrating utility of some sort – that’s but 10 percent.
For many companies, utility appears to be an afterthought, except for a token to be successfully adopted into the community, it’s the foremost critical component. With the quantity of tokens on the market today, and new ones being launched a day , it’s clear there’s a bubble, though the dimensions of it’d be debatable.
When the market slows, the tokens that haven’t any utility will ultimately not have any value in the least .
Opening the crypt
If you would like further proof of the importance for utility, inspect deadcoins.com, which acts as a digital mausoleum for the 600-plus cryptocurrencies and tokens that have given up the ghost.
As you look over the summaries of a number of these coins, which could essentially be “cause of death,” you’ll see notes like, “trading with a market cap of $183,” “scam” and “shut down by SEC.” an honest thanks to recap these failed ICOs is there was no functioning platform with proven utility. Tokens and platforms centered on utility will continue albeit their creators advance or disappear.
Just check out BitShares and bitcoin as a couple of examples.
There are several benefits to making utility with a cryptocurrency (beyond avoiding the SEC hammer). Building utility capabilities for your token inside your platform creates a healthy ecosystem. albeit you don’t have people speculating on the worth of your token and your token isn’t listed on any of the large exchanges, it’ll be bought, sold and traded for services on your platform and amongst your community of users.
Delaying a product’s build until after a successful token sale is additionally an enormous lost opportunity.
Post-sale, you’ve got thousands of excited, new community members that hold your token and need to ascertain you succeed. If you’ve got a working platform with utility, you’ll easily bring those new token holders into your broader community to grow adoption where it is sensible , and make massive momentum.
I expect that in 2018, it’ll be rare to ascertain companies that issue token sales without some kind of product. For token holders, that ought to be a serious requirement when doing their due diligence.
And there are some really interesting ways companies are creating utility.
Here are a couple of that stand bent me:
Purchasing services: The baseline qualification for many companies issuing tokens should be that the token are often wont to purchase services within their platform. Purchasing services with tokens accelerates the time it takes for a transaction to settle, it makes purchasing services easier and adds a component of privacy also . within the beginning, when the corporate is scaling and spending extra money than they’re making, the quantity of tokens exchanged for the acquisition of services are going to be minimal, but because the company’s revenues grow, so will the token transfer rate. You don’t got to require tokens to get services, but providing the choice (and possibly providing a reduction for doing so) can go an extended way in driving the utilization of your token.
Create a self-sustaining ecosystem: If you’ll create a marketplace that connects buyers and sellers, facilitating transactions utilizing your token you’ll create a self-sustaining ecosystem that’s supported transacting your token. One example is Golem, which uses its GNT token to power its decentralized computing network. Companies in need of processing power pay with GNT, which is then wont to pay individuals who share their computing power when their computers are idle. This creates a huge network that lives off the utility of GNT.
Automated smart contract payments: one among the areas for the most important utility opportunity is enabling new capabilities with smart contracts. one among the advantages to smart contracts is that they allow automated payments that allow devices to autonomously participate within the network. Your smart fridge can’t swipe its mastercard at Amazon S3 to store its data, but I could set that up with Storj and STORJ token.The flexibility from smart contracts also allows other ethereum platforms to integrate on the back-end. At Storj, we’ve many blockchain companies who are integrating with us on the back-end. When a user at another company pays for his or her service using our partner’s token, some of that cost are often converted to STORJ to buy the storing of their data.
Room to explore
Still, smart contracts arguably have a number of the foremost interesting utility examples, many of which have yet to be uncovered.
This is why the grand majority of token sales are for ERC-20 tokens, which leverage ethereum’s blockchain and its underlying smart contract technology. In fact, our team at Storj underwent a token sale this year that involved us migrating from a Counterparty token to an ERC-20 token. We saw the huge opportunity to leverage smart contracts and therefore the de-facto standard for tokens within our platform.
This year has been a huge year for cryptocurrency, blockchain and smart contracts and that i expect the approaching year are going to be no less exciting. But, if 2017 was the year of the token, then 2018 are going to be the year of utility.
In the coming year, I expect we’ll see tokens that provide true utility float to the highest . And within the process, there’ll likely be more tokens left behind.