Can smaller companies get a piece of the cake?
I think that they can.
In 2017, ICOs raised over of $6 billion for budding companies that were brave enough to explore this new and exciting world.
But ICOs are prohibitively expensive affairs: Conducting a successful ICO costs between $500k and $1.5 million. For thousands of smaller companies and brands, these numbers are just not feasible.
Just like any new field, the crypto and ICO world is being built as we speak, through the process of trial and error. While regulators are busy trying to make sense of it, it’s our responsibility to pioneer new ways of creating and trading wealth.
Thankfully, the barrier to entry has now become sufficiently low for smaller players to begin experimenting with various business and token models.
So, how can smaller companies get into the game?
First, Get a Token
ERC20, the Ethereum token standard, is a technical standard used for smart contracts on the Ethereum blockchain. This is the same standard that the vast majority of ICOs use today.
ERC20 tokens usually have the following basic characteristics that are decided at the onset:
- Name (ex. “Golem) and ticker (ex. “GNT”)
- Total supply (ex. 20,000,000 tokens)
- Decimal places (ex. 8) — Decimals refer to how divisible a token can be, from 0 (not at all divisible) to 18 (pretty much continuous) and even higher if required. Technically speaking, the decimals value is the number of digits that come after the decimal place when displaying token values on-screen.
What I’ve described above is the most common type of crypto-token. Additional features and twists are not uncommon:
- Pauseable- Tokens may have the “pause” function, which allows the token issuer to freeze the tokens and disable transactions at will.
- Burnable — Tokens may be “consumable”. For example, tokens that were “used” can be removed from circulation.
- Mintable — A mintable token is a token with a non-fixed total supply, enabling the token issuer to “mint” more tokens whenever they want.
I believe the best way to get your feet wet is to go out there and obtain a token for your business.
Here’s how you can do that:
- If you are a coder, creating an ERC20 token is not too difficult, even if you don’t know Solidity. If you go down this DIY route, make sure to use tested and approved code and try not to change the implementation unless you absolutely have to. Check out OpenZeppelin on how to do it the right way.
- If you are not technically inclined, I would suggest getting in touch with an agency that specializes in smart contract development. They will be able to create the best token possible to suit your needs and educate you on how to safely use and store it.
Start Experimenting
Now that you have a token, my first bit of advice would be not to do a crowd-sale. Here’s why:
- A crowd-sale forces you to define what your tokens are. If you are selling them to raise money, they are by definition a security. *Note: Security tokens are an interesting concept which has not been sufficiently explored yet. Everybody is running from this label for obvious reasons, but that doesn’t mean there are no viable routes to issue a proper security on the blockchain. The main problem is that this costs a lot of money and time, which is why I would advise small companies to avoid this path for now.
- Even if you have been able to come up with some kind of utility use for your tokens to escape the dreaded “security label”, a crowd-sale will require an expensive marketing campaign to make it worthwhile — and you will quickly find yourself spending big money.
- Lastly, you can always do one at a later date, after you figure out a viable token-model for your business.
Instead of a crowd-sale, take some time to brainstorm possible business use-cases for your token. Some examples:
- Tokens can be coupons or vouchers for your customers. Ex: You can decide that a token is worth a 50% discount on a certain product. This will create an artificial market for your tokens, making them worth something to your customers (and to you).
- Tokens can be given away as a reward for contests or for filling out surveys to incentivize people to participate.
- Tokens as “member’s-club”. You can decide that token owners are now members of your member’s club and get special discounts.
Possible use-cases for crypto-tokens are endless and may vary significantly between businesses. What worked for the other guy may not work for you, and vice versa. In one word, experiment.
Once you have a solid idea of what to do with your tokens, start engaging your existing customers and see what sticks.
Also, don’t worry too much about your tokens not being worth anything in the beginning. Instead, focus on creating a market for them. The value will take care of itself.
Limitations
Today’s tech still has severe limitations that you need to be aware of.
- Security — Creating, storing and using a crypto-token in a secure manner is not easy and requires some hand-holding in the beginning. When creating a token, make sure to do so with a specialist who will teach you how to do it safely.
- Lack of easy to use tools - Unfortunately, today’s token management tools still leave a lot to be desired. As of March 2018, there are still no truly user-friendly token wallets. If your customer-base is mostly young and/or are techies, this limitation may not impact you that much. But if you are selling to older non-techies, today’s wallets may prove too tricky to handle for them. With that being said, I’m 100% sure that we will be seeing amazing and user friendly wallets for tokens in the next few months. If you have the patience to wait, it may pay off to start getting your feet wet now.
- Lack of tools, cont’d- The lack of good token management tools also means that you will be doing most actions, such as sending tokens to people and maintaining a spreadsheet of who owns your tokens, manually. Once again, this is a temporary issue. Good tools are on the way.
- Gas — Gas is a fee that is paid for every transaction on the Ethereum network, and that includes token transaction. On average, it costs around 2 to 5 cents in Ethereum to transfer any amount of tokens from one person to another. This is an extra layer of difficulty that both you and your customers will need to deal with, mainly because this will require your customers to own Ethereum (a cryptocurrency) and know how to use it. In the beginning, you will probably have to pay these fees and manage your customer’s tokens. Further down the road, better tools will simplify this process greatly.
- Legal- Whatever you do with your tokens, I recommend consulting with a lawyer on whether your ideas are legal or not. Token regulation is still unclear, so it’s important to be careful.
Questions? Thoughts? Need help? Feel free to reach out!