Johannesburg, 07 Sep 2019
Whenever you mention crypto-currencies to anyone, usually the first thing that they respond with is “Bitcoin”. Often it’s the first thing that even seasoned investors and developers will mention too.
This is not because Bitcoin is the best crypto-currency, it’s actually bad at a lot of things. It’s because Bitcoin is brilliant at what it is, secure, private money that you can truly own.
There are also around 2 000 other crypto-currencies and tokens, and many wonder how will all of these tokens and crypto-currencies coexist without it becoming a messy and confusing system, where trying to use a token is the equivalent of looking for that one screw that you’re positive you saw in your junk drawer between old takeout menus and loose batteries.
The blockchain space today is a young, fractured environment with thousands of ideas on how best to improve problem areas such as food provenance, cost-effective micropayments and identity management. That being said, remarkable technologies are emerging and being adopted as the businesses and organisations behind them mature and develop.
Crypto-currencies and tokens are quite different. A crypto-currency can be better compared to a mix of harder assets like gold, or a government-guaranteed bond or fiat currency, while tokens are like loyalty points, train tickets or air miles. Tokens are also usually “built on top” of blockchains like Ethereum, whereas crypto-currencies are the native currency for that particular blockchain.
Exchanges have made it easy to trade crypto-currencies and tokens; you can even do it from your mobile phone, which makes the point of entry for businesses to move to already existing public blockchains relatively simple for everyone involved, with the only real barriers being that users have to own a smartphone and need an Internet connection.
Crypto exchanges have also had a negative impact on the perception of blockchain, crypto-currencies and tokens. In 2017 they contributed to the ICO (initial coin offering) boom and bust which burned many investors.
By making as many crypto-currencies and tokens available as possible, exchanges essentially motivated companies with vapourware to create tokens and sell them to speculators who were willing to roll the dice with the hopes of coming into a large windfall of profit.
Needless to say, that didn’t happen (for most).
Tokens and crypto-currencies were changed from a useful tool and currencies into a game of speculation, and this is entirely the wrong approach to take when evaluating them for investment purposes.
To clarify, crypto-currencies while controversial are certainly a better vessel for investment, but tokens are probably not — unless they are useable immediately and provide value to buyers — otherwise, if tokens are based on a future product or service, then investment into that token is more of an outright gamble than investment.
Looking at the investment case
When comparing an investment in bitcoin to that of Microsoft over the same period we notice two things: firstly, bitcoin (and crypto-currencies in general) are extremely volatile, and secondly over the longer term (3+ years) you realised a far greater return with bitcoin than that of Microsoft.
Exchanges, companies and organisations used this same overly simplistic narrative to sell everyday investors tokens without real use cases.
Think of token purchases like buying tokens for the arcade, but when you get to the arcade, you discover that they sold tokens in advance because they needed to finance the building of their games, and the building is actually empty. Once (or if) the games are built, some might be great, some might be terrible and some may never be built.
This is a very flawed means of fundraising and sets impossible expectations for token buyers, inevitably causing price stagnation and selling at a loss. Investors and the market have now matured considerably, and are now far more reluctant to invest in utopian ideas and opting instead for the more traditional approach of requiring substance before investing.
The problem with pre-selling tokens that would be used in future software and/or systems, is that the investment is made with the wrong entity. If you wanted to invest in ice cream because you think that global warming will increase ice cream sales, you don’t go to the store and buy tubs of ice cream, you buy shares in the ice cream factory.
The same can be said for crypto-currencies and tokens. While tokenisation is an inevitable future that we already have embraced with loyalty points and tickets, it is not the place to invest for anyone who is even slightly risk-averse.
In the future, tokens will still be exchanged as they are today, however, they will stabilise once they are actually being used. If you buy a coffee at Vida e Caffe and get a sticker, and need to collect 10 to get a “free” coffee, regardless of how much the price of a coffee goes up or down, the value of the sticker is always a tenth of a cup of coffee, the same principle will apply to tokens once they are being used in real-world examples.
Truly adoptable token economies will be the ones that we think about as much as we do with the current token systems we use, which means we don’t think about them at all, they just work.
Platform orientated crypto-currencies are blockchains that use a native currency like Ether to power the operations on that blockchain. For example, if you wanted to mint tokens on top of Ethereum, you would need to pay a small amount of Ether to run the smart contract that creates them.
Platform crypto-currencies are likely to continue to grow in value and visibility as products are built and released on top of its infrastructure and the tokens themselves slip into the background processes of using software or services.
This means that as more businesses build on top of platforms like Ethereum, Cardano or Ethereum Classic, those platforms, serving as layer 1 infrastructure is likely to increase in value as each networks importance and influence grows.
Token economies are and will continue to be a source of value that will be significantly improved by applying the private, secure and easily integrated properties of blockchain technologies, but the tokens themselves are likely to eventually move from the speculative market to a more stable one once each respective token team has released their software or product.
For a long-term investment that will grow with the blockchain space as a whole as opposed to a single product, passive investment in an equally weighted bundle of platform crypto-currencies is the smarter play, as these will grow in importance and value as the products built on their infrastructures do.
Revix offers various equally weighted bundles like the Platform bundle, giving investors an easy way to invest in Ethereum, Ethereum Classic, Cardano, EOS and TRON, the top five platform crypto-currencies. This gives investors exposure to 93% of the total market cap of platform crypto-currencies and a 15.07% exposure to the broader crypto-currency market. Revix bundles are a smart, easy way to passively invest in crypto-currencies.
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