Security tokens and the internal currency
The initiators—the founders of an ICO—should have put careful thought and consideration into what kind of coin or token they want to issue. There are basically two types: the security token and the internal currency.
The security token is generally directly or indirectly linked to the success of the company. The investors in an ICO receive a mid-term or long-term payment of interest for their investment if the project works. Token purchasers seldom get any voting rights or shares in the issuing company. In fact, in many cases, it is not a company issuing the tokens but a project or foundation that doesn’t belong to anyone, therefore ruling out the possibility of acquiring shares.
There are no voting rights associated with the token
There are a few completely “flat” ICOs that do nothing more than distribute a ten percent share—or however much is stated—to new investors via an ICO. Most of these shares are issued without voting rights and have nothing to do with the blockchain itself, nor do they give the investor any chance of disproportionate gain. It is precisely these types of ICOs that are catching the attention of authorities across the world. What this sort of ICO is doing is simple and is easily comparable with the public issue of shares in a company. It is sometimes even comparable with a stock offering, but it is only possible and legal in countries with appropriate requirements. For that reason, we categorize these ICOs as a security or security coin.
Anyone who invests in an ICO like this must be aware of the possibility that they have not acquired any shares, even though their money has been taken. In the worst-case scenario, those who have received the money wind up in jail and the company falls apart while the leader is behind bars. Even if only an investigation by the authorities and supervisory bodies is undertaken, investors must remember that the management can easily become distracted from their actual task, which is to develop the project. The rule of thumb here is that there should be no investment in equity tokens.
Equity tokens are not ideal.
As equity/security tokens are not ideal in the context of an ICO—and are also probably illegal—internal currency is the remaining option available to potential investors. This is the category that makes the most sense and that you can confidently support if you take all the other precautions outlined in this course.
An internal currency — or utility coin or token — basically means a currency within a project, where only these new tokens can be used to pay. If you want to buy stickers in the Kik Messenger app, you have to use their Kin-Tokens to pay. The system does not permit any other payment system. Users are forced to use the Kin-Tokens or else they cannot purchase any stickers. The token has utility.
This is a remodeled sharing economy, and only the blockchain makes it possible.
Other examples are the various decentralized storage solutions like SIA, FileCoin and STORJ. These blockchain systems allow people who have large hard drives, but who only use a part of it, to rent the unused part. Most computers now come supplied with hard drives of at least 500 MB, if not 1 or 2 TB. This solution makes sense because more and more digital merchandise is being purchased and saved by individuals, but unlike the cupboards at home where you can reorganize the shelves in spring, hard drives are constantly filling up faster than the capacity available. Therefore offering unused disk space for token payments may make a lot of sense.
The type of token is as important as the so-called token economy. Too many tokens or not enough as bad as the wrong distribution schedule. In the next episode, I’ll show you how to analyse this very important aspect before you invest.
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