Cryptocurrency for Entrepreneurs
Every digital currency on the market can be classified as one of five types. The distinctions between them are important because they tell you what exactly you’re investing in and who can invest in them.
Coins vs Tokens: This is the biggest distinction between cryptocurrencies. Each digital currency must be one or the other, and here’s the difference—coins have their own blockchain and tokens don’t.
A blockchain is a decentralized, peer-to-peer network that records transactions on a digital ledger.
Most of the big-name currencies are coins.
On the other hand, tokens must be created from a blockchain already in existence like Ethereum. Their protocol exists on top of that blockchain.
Coins function as currency; tokens represent access to “stock” or a product. The value of a token is a little complicated, too.
Tokens are usually released in Initial Coin Offerings (ICOs), which give the investor access to tokenized services or products, or represent a stake in a cryptocurrency company.
Tokens also fall under different SEC regulations depending on whether they represent a utility or a security.
Utility Tokens vs Security Tokens: It’s almost essential that an entrepreneur understand the difference between these two types of cryptocurrency.
The SEC has much stricter regulations for security tokens than it does for utility.
This is because the former, as the name says, act as digital securities.
If you can buy or trade a token on a cryptocurrency exchange without being an accredited investor, then it’s a utility token.
In the most basic terms, a utility token gives an investor access to a product or service. It can represent a discounted rate or early/exclusive access.
If you’re looking at Smart Contracts or DApps, you’re looking at utility tokens.
Security tokens are different. They’re securities that exist on a blockchain and represent part-ownership in a real-world, tradeable asset that is external to that blockchain.
Because they’re regulated by the SEC like securities, you must be an accredited investor to trade them. The SEC decides which tokens are security tokens by determining whether or not an investor will make money based on a third party’s labor.
Stablecoins: Distinctions between the different types of cryptocurrency can be a little obscure. Some companies will try to pass off their security tokens as utility tokens.
And then there’s the debate over whether or not tokens can represent currency (like coins) rather than just access to a service.
To make things even more confusing, stablecoins are often technically “stabletokens.” Stablecoins are a type of cryptocurrency that is “pegged” to traditional assets like government-backed currency or gold.
The advantage with this is that during a “bear” market, investors can move their money from volatile cryptocurrencies to stablecoins (which are theoretically more stable) instead of converting back and forth to USD, which will involve transaction fees.
Then, during a “bull” market, the investor can convert the stablecoins back into more volatile cryptocurrency without much of a cost.
Despite being called coins, however, most stablecoins are actually tokens because they don’t have their own blockchains.
Why should you care whether something is a coin, a token, a security or a utility?
As a potential investor, you need to know the value of the cryptocurrency you’re considering and how current and future SEC regulations will affect it.
And the distinction between coins and tokens marks the two forks in cryptocurrency’s evolution: cryptocurrency as a payment method and as a tokenized security.
The question is: can cryptocurrency replace the US dollar or the stock market—or both?
How Cryptocurrency Can Help Entrepreneurs
Blockchain technology is a once-in-a-lifetime invention. Cryptocurrency has revolutionized the way we buy and sell, raise capital, and invest our savings.
Here are some ways it can help you:
Raising Capital:
Using Initial Coin Offerings (ICOs), startup companies worldwide can raise money quickly (and inexpensively) from a huge pool of global investors rather than trying to locate locals who might be interested.
And the valuation of your company is reflected in the market practically at once, unlike the long, laborious process it once took.
You can issue shares as tokens and they become tradable almost instantly, giving your company the liquidity it needs to start. This new cryptocurrency approach allows the best technical talents to build their companies at a great rate of speed.
Transacting Value:
Cryptocurrency lets a company transact value between peers easily, cheaply, and more efficiently than with traditional payment networks.
Accepting cryptocurrency is becoming increasingly more efficient. It saves on fees and allows a company to have faster settlements.
Pretty soon, a startup company won’t have to go through the long, laborious process of setting up a bank account in order to receive and distribute funds.
Investing for the Future: According to AMZcoin, cryptocurrency “may be the investment opportunity of a lifetime.” Never before have retail investors had the kind of access to high-growth, early-stage companies that they have today.
Traditionally, this access has been monopolized by private investigators and venture capital funds. Cryptocurrency allows nearly anyone in the world to invest in the some of the world’s most exciting technology, giving them the ability to own shares in high-growth companies.
Developing on the Blockchain:
“Blockchain technology ,” says AMZcoin, “is a cost-efficient way of building decentralized applications that can scale to a global population.”
Blockchain technology is already revolutionizing how startup companies create value. Ethereum’s platform lets companies build “unstoppable blockchain applications” without cost and with a great deal of speed.
One example of a company using Ethereum is OmiseGo. This is a company that uses blockchain to provide banking services for the 2 billion people in the world without access to a traditional bank.
Joining the Blockchain Community.
This community offers access to some of the world’s most successful entrepreneurs, engineers, and investors, who are actively advising, investing, and building on that blockchain.
Platforms like Facebook, Telegram, WeChat, WhatsApp, and Slack are popular places for groups of these entrepreneurs to stay in contact with one another.
Communities of blockchain investors can coordinate large investments, something that would take months in traditional venture capital, within only minutes using these groups.
Cryptocurrencies provide entrepreneurs with a platform to raise capital efficiently, quickly, and cheaply. Investors can transact value at high speed through the blockchain with limited setup costs. They can also invest in high-growth technology companies at an early stage.
Cryptocurrency will keep providing a means for entrepreneurs to create value in the world.