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 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:
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.
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:
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.
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:
