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ICO — dawn of a decentralized business model
Material posted: Publication date: 05-09-2017
Strange events began to happen literally four or five months ago. Before this time, in the last three years, venture capitalists and funds invested in cryptocurrency startups of the order of 1 billion dollars, but in recent months, several blockchain projects raised more than $ 250 million, and neither one of them was invested in venture capital money. What's the matter?

Let's look at some examples.

  • The project SONM — a decentralized global supercomputer for cloud computing. As well as Bitcoin or Ethereum, they have no centralized owner and operator of the network. The project has attracted funding of $42 million by selling tokens SNM bitcoin and esters. The token allows you to buy and sell computing power. If you have earned or bought the SNM, can acquire for example the computational power of miners or keep them as an asset. If you think they are expensive, you can exchange them for any other currency (1 SNM stands today about $0.068);
  • Gnosis — the prediction markets where you can buy and sell predictions on the outcome of an event where participants pay for confirmation of events as "oracles". The project has collected planned amount of $12.5 million in only 10 minutes;
  • Steem or Golos is a decentralized Reddit, where people are paid for the contribution in news and content.

Sale token

All of these projects did crowdfunding on the blockchain, and to raise money, issued and sold its own tokens. If you saw the process just a new way to raise money, just as a company sells stock, then look more closely and you will see how far it goes beyond the simple attract of money.

In all large projects, they have several key components:

  • The currency that is used in the application.
  • New contributors (investors) app directly purchase tokens from the creators.
  • Cryptocurrencies (the tokens) easy to convert to any crypto or Fiat currency.

All of these projects create their own cryptoamnesia ecosystem, and in fact, we say that this is a completely new decentralized business model, which is only created and try. The essence of this model is the creation of a network in which no Central controlling company. Ownership of the network is divided among all participants, a unique business model. It became possible thanks to the combination of the new possibilities of the cryptocurrencies and the Internet. These facts indicate that the phenomenon goes beyond a new way of raising money.

In these "projects" or "applications" we may notice one more thing: they really are decentralized software protocols. The protocols is a modern technical term, that enables people online to work together on specific problems.

Here is a popular Internet protocols used for a long time:

  • HTTP is the primary Protocol that defines how information is transmitted through the Internet;
  • SMTP — Protocol for sending and receiving email used by your email application;
  • SSL secure data transmission is used, including your browser.

One of the founders of Union Square Ventures — venture capitalist Albert Wenger wrote in his blog :“historically, it is very hard to stimulate the creation of new protocols.” This is due to the fact that it was not possible to monetize the creation and maintenance of these protocols. It is very difficult to obtain a new Protocol for the problem of “chicken and egg”. For example, to create the e-mail Protocol SMTP, there was no direct monetary incentive. Much later after its creation, companies such as Outlook, Hotmail and Gmail made a real business on top of it. As a result, we see a very successful protocols tend to be quite old.

In the new business model is a great way to encourage creators. Now you can create a Protocol, create a token for this Protocol, save a part of the token itself for the future and if your Protocol is successful, the token will grow in value. Moreover, since this platform is always open source, if the creators are too greedy and leave too many tokens yourself, anyone can just forgot the system and run the same network, but with the best conditions.

What tokens can help to solve the “chicken and egg”, which occurs when the creation of network projects. To understand this problem, let's look at some well-known projects: Twitter, Facebook, Reddit. The value to be the first customers in these networks was very low. They are rarely used, therefore, was not content. Now millions of people use these apps and find them of great value. In other words, the value of a network grows when it is joined by more people.

Give value to people and you will create a new network.

To attract people to join the network, decentralized platform gives the buyers a token partial ownership of a network. They pay tokens to their depositors and the owners of the tokens look forward to its growth potential in the future (this is to be the first bitcoin miners).Also, can you compare it with buying shares in a startup. The sooner you buy, the more property at a lower price, you get.

These incentives are amazing, they compensate and complement each other. Clients and contributors appears much more incentives to join your network, even if it is still malaysiana, it has become useful. Such models are for many years used by startups to attract employees. Now decentralized platform and applications use it to entice all potential users from around the world to join the network at an early stage.
All this greatly simplifies the creation and launch of the network. Network projects have tried all possible things to solve the “chicken and egg”, for example Reddit has created their own content until until filled the platform with their own content, and Facebook used the directory of Harvard students to fill its network.

Bitcoin and Ethereum was the first who began to use the decentralized model. They used it for filling customer networks for currency exchange or transaction. Currently, this model is used by tens of decentralized applications to create their own networks.

Imagine what would happen if this model from the beginning was used for projects such as Twitter, Wikipedia, Facebook, Reddit or Uber. Instead of the main company owned the network and make money by extracting rents from the network, they created a software Protocol would replace the centralized operator, and all the creators and participants in the network mutually owned her. Contributory networks (like Uber drivers) would not work bees, and would be more like co-owners of the network where they create value.

A decentralized Protocol is the network operator

Such a decentralized business model can be described for example as Uber, without Uber, as a company that controls the drivers and passengers, or as Reddit, without the necessity of Reddit, how centralized hosting, or Facebook without the Facebook. Of course, there are companies that maintain these networks through any value-added services, such as checking cars in Uber or autofinanzierung, it just won't be one company that owns the entire network.

It's probably early to say this, but the tokens and the new decentralized model can mean for the world a number of global change:

If the project builds decentralization first, he is still where he is: in Africa, in China or Silicon valley. It is in the same network of the global blockchain. The investment market and access to Finance projects has become more equitable, where anyone can become the Creator of the project and obtain funding. On the other hand, anyone can become a venture capital investor and to be able to invest in any project. Thus, the first technology of the blockchain has given us the Internet money, now she gives us the Internet assets.
Most likely, it will be like in the late 90s to create websites, or processes to create mobile application in 2000-ies.

Projects such as BITSHARES, Steem and some have their own blackany. Others were established over the major platforms on the Bitcoin Colored Coins, Ethereum Augur on, but all these facts and phenomena are independent of platform and Protocol of the blockchain.
I believe that most often we will see that the tokens will be based on the major blockchains like Ethereum, as well as most tools for web developers created libraries and examples, focused on platforms like Ruby on Rails or Django. They have created lots of web applications since they greatly simplify the deployment of web sites. At the same time, there is still a lot of important infrastructure projects in order for decentralized applications and token you can create as simple as a website for the modern developer.

The increase in the number of tokens is likely to be similar to the growth in the number of apps in the App Store and Google Play, slow starts, and then will exponentially grow.

As well as web and mobile applications, first their will be thousands, then millions, many of them are useless, some are popular, and some will become super hits. There will be many challenges, painful lessons, hacks like DAO or few large projects can fall. Some people will focus only on the financial side of this wave, like Wall Street 2.0, and have not yet seen the phenomenon in General. This is the biggest and most important trend that we observe in the world of digital currencies, in the next few years. Most likely it will be the basis for the first application of the monsters as they say, come forever.

Today we have only a few basic protocols, but look how they make our life: HTTP gives us data over the Internet, SMTP gives us email, SSL gives us a safe data transfer in the Internet.

Decentralized protocols and the tokens on which they work is the beginning of the mechanism to create huge number of such protocols, which means that global equality of opportunity have a joint property in the digital networks, which we can buy and sell. This is what leads to greater innovation and better opportunities for consumers and businesses worldwide.

Regulators such as the SEC, of course, want to know more and how to join in this great game, but hopefully they will see that they have fundamentally different properties than the securities that the token is not only growing on the stock exchange, but also helps to grow a software Protocol. Working in this way, tokens allow you to use innovation in these protocols, which will be an additional force for the Internet economy.

For many decentralized applications, protocols and tokens, most of the basic concepts are still correct, but it is too little time to gain full conviction in trends. Fundamental protocols must be modular. And I think we will see decentralized applications built on a variety of different protocols when one application has a single token and will be built on a series of underlying protocols.

Eduard Karionov


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