How are the tokens paid in used?
The token economy is another important factor for consideration when trying to evaluate a good investment opportunity. Who gets how many tokens, and for what? When are tokens issued and under what conditions? How many tokens are there?
The economic interplay of all participants is of crucial importance for the success of an ICO investment.
The Bitcoin token economy is very well balanced and that is an important contributing factor for why Bitcoin is the most important and valuable cryptocurrency in the world. To begin with, the coins are not just distributed freely and easily. That is different for many other currencies that are available.
Coins before the ICO
Coins that exist before the ICO is known as “pre-mining.” These are coins already existed, even with the genesis block, which is the very first block. For example, let’s consider a scenario where the initiators have generated, say, 10 million coins already and now generate 10 million more through an ERC-20 smart contract. That is a standard way to generate tokens for an ICOs and it is done by utilizing a special feature of the Ethereum blockchain.
If this second batch is then sold in an ICO for 1 million dollars, then the coins already present are now also worth 1 million dollars. You can become a millionaire that quickly and easily.
Bitcoin is completely different
It is completely different for Bitcoin. From the very first block—the genesis block—mining was done with proof of work, and no one has just kept millions of Bitcoins. This is certainly a huge quality feature which should be noted.
But Bitcoins are a cryptocurrency that have to be created, and a predefined quantity of new coins is generated through mining. With ICOs, however, other stimuli are used for creating coins, and exactly how that happens could be divisive.
Quantity in Circulation and Total Quantity
Along with the number of coins that might already exist, there are other factors of great importance, including how new coins are generated, when they are generated, and how many are generated in total.
When making an ICO investment decision, you should certainly look at whether the number of new tokens is limited, how quickly they are created, and the method by which they are created. These are crucial criteria to take on board when considering the potential future value of a token.
If the tokens can be produced indefinitely, increasing or decreasing depending on the mood and whim of the management, that should be a huge red flag that investors should not ignore.
The ideal scenario is a token that has a maximum number and is issued over the course of time depending on success. Of course, no one should be able to affect the issue of later tokens except the system itself. That is to say that there is no management, but, of course, with a decentralized blockchain, that goes without saying.
Together with the inflationary aspects, how and why these tokens are distributed is also important.
Who Receives How many and For What
A good or even reasonable token economy is not found in every ICO. In the meantime, the proportion that the founders assign to themselves has swung from about twelve to eighteen percent, which does not seem like a sensible decision. When you consider that the eighteen percent is relative, one has to wonder whether founders should really keep $18 million of a $100 million ICO just for their idea. Plus, there are always new positions being invented which are also assigned a few percent here and a few percent there. Management makes two percent, marketing makes four percent, community service makes six percent, and so on.
This type of structure should be closely examined before investing. The whole model is sometimes very complex in construction and not very transparent.
From the investor’s point of view, the aim of an ICO is that the price of the tokens rises. For that to happen, the new coin must first be traded, which we are going to examine in the next update.
Until then, control your Private Keys and stay safe
Only information, not investment advice This course is not just about the opportunists and rip-off artists that lurk at every turn; it is also about the enormous opportunities that proper ICOs offers to investors. However, it must be stated categorically at this point that this course is only intended to explain and inform. The statements in this course are in no way intended as instructions or advice for investment, nor can they be construed as such. Any investment in an ICO and every purchase and sale of cryptocurrency is undertaken at your own very high risk, and should not be based on any of the statements presented in this course under any circumstances. Do your own due diligence in every instance before you participate in any transaction