Cryptocurrency has been through many evolutions over the last 15 years. This included a lot of hype cycles, something that was aided by market frenzy. Through it all, development continued as businesses watched from the sidelines.
Today, we have Wall Street entering in a larger manner. Banks have figured out there is something they can profit from, hence the shift towards embracing crypto. This is the first traditional sector to truly step forward.
What about other businesses?
So far, they are still on the sidelines. Much of the delay is due to a combination of regulatory uncertainty along with a bad impressive of the industry due to scams and Ponzi schemes. It is certain that we are our own worst enemy.
That said, there will be a flood of adoption coming at some point. Once in a while, it is best to step back and see what the basics are telling us.
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What will it take for the masses to adopt crypto?
This is a question that was asked for years. Over that time, many theories were offered up. Of course, they were forgotten when attention turned to whatever the "flavor of the month" was. Market excitement is rarely an indicator of long term change.
Never was this more true than with cryptocurrency. Like most things, the hype cycles are on steroids.
For this reason, let us take a look at something that isn't very exciting, not going to moon, nor make anyone rich. It is, however, the basics of business building with a foundation that crypto can rest itself upon.
Here is where we can look to the utility token.
What is this?
Basically, we are looking at a token that is tied to a product and has a clear role in its life cycle. This is not something that denotes a piece of digital real estate or ownership of an asset. Instead, we are dealing with a business using tokenization as a course of business development.
Again, unlike what most involved in crypto focus upon, this is not exciting. The green candle gang will not be the least bit interested. That said, we are dealing with trillions of dollars worth of commerce each year.
Most of us have seen companies that offer reward programs. This can be anything from frequent flyer miles to a coffee shop providing a free beverage after 10 are purchased.
These programs are nothing new.
Tokenization brings a new element to the table. Customers who take advantage of these programs are locked in. By this, the rewards cannot be transferred.
We also have the issue of price discrimination, which is a benefit to the issuer. Having a utility token will disrupt this, although it will ultimately be for the benefit of the business.
From the user perspective, there is more value in being able to trade a token on a secondary market. Those who are regular users would naturally keep using the product or service. In fact, those individuals now have an even greater incentive to increase the usage.
Those who only frequent the business on occasion also benefit.
So how does the business come out ahead.
Marketing can be an expensive proposition.
Tokens can be a powerful marketing tool without affecting the current financial position of the company. When engaging upon a marketing campaign, money is paid out. Advertising or whatever tactic is selected has a direct cost to it. Someone is providing an invoice for payment.
How does tokenization change this?
The answer lies in simple accounting. A great example of this is casinos.
With tokens, one is marketing while using future revenues as opposed to cash. Again, if we advertise, cash is used to settle the bills as they come in.
Let us look at casinos. How to they operate?
When they are looking at marketing to gamblers, especially heavy rollers, they will offer free tokens. We even see this online gambling sites which offer $100 for signing up. Did this cost them any money? Not at the moment that it is made.
At a physical casino, gamblers are literally handed tokens. They head to the tables. If they are lucky enough to win, the casino has a payout, hence a draw against its revenues. The odds are, however, the free tokens end up given back as the gambler loses.
In other words, we are dealing with free marketing.
The gaming world is well aware of this. Utility tokens can bring this to all industries.
Do you see how this is a growth funding mechanism?
The company can keep "printing" tokens and placing them on the market. Their value would be somewhat stable since they are tied to some type of program.
For example, if the token represent 1 cup of coffee, the value is equal to the price charged for the product. If that is $2, then buying the token on the secondary market for $2.50 is foolish. Of course, heavy coffee drinkers might be on the secondary market regularly since people might be selling for $1.50 just to get some cash out of the deal.
The supply is reduced each time someone redeems a token. There will be a constant ebb and flow as customers use the tokens in relation to the company distributing more. Again, when the 10th cup is purchased, another token could be issued to that individual as part of the rewards program.
None of this is money out of pocket, at the moment of issuance, by the company. This is not simply an airdrop of something that has no value since it is tied to some product or service. Market dynamics are not the main force as works like "cashflow" and "market share" are applicable.
All of this is factoring into the concept of a stakeholder. Customers are now drawn into the loop as stakeholders. Even those who acquire tokens through whatever means and sell them on the secondary market are part of the process. Of course, the real concern is those who are engaging with the business through the tokenization process.
Here is where token appreciation is not sought. Instead, accumulation of more tokens is what is desired. This translates into more product or service from the company, something that is obviously desired by the token holders.
The use cases for utility tokens is limitless. It is also something that has not been incorporated by the business world. This, however, could be a major boom once companies realize the benefit and what they can do.
It could also trigger mass adoption if the major players start to utilize this concept.
