Cryptocurrency and blockchain are exciting technologies with a lot of possible applications, but they haven’t quite managed to capture the public’s imagination yet. If you ask the average person what they think about crypto, they’ll probably either talk about Bitcoin’s wild price fluctuations, or tell you about this friend of theirs who lost a lot of money on an ICO scam.
This is not particularly surprising, however. Most new technologies have to struggle to find their footing and gain widespread mainstream acceptance. Look up the progress of any of the technologies we take for granted today – television, home computers, the internet, our smart phones – and you’ll find op-eds from top thinkers of the day who thought they were flash-in-the-pan fads and pipe dreams that would never truly catch on.
Cryptocurrency is still trying to move on from the faddish stage to become a commonplace part of our everyday lives. The next step in this journey is the security token offering, or STO. Security tokens aim to serve as a blockchain-based store of real-world value, whether by tokenizing existing assets (such as precious metals, stocks and bonds, or real estate) or by serving as a currency.
What Happened to ICOs?
Perhaps one of the biggest problems with the utility tokens that served as the backbone of the ICOs of 2016-2018 was the fact that they failed to actually be utilized. If you can’t get enough people involved in your blockchain’s ecosystem, your token won’t actually have any utility or any value.
The problem is that the general public isn’t really ready yet to be part of a blockchain ecosystem. Few ICO investors were interested in the utility of the utility tokens in question. They were looking to invest in cryptocurrency because they heard that bitcoin was worth thousands of dollars and they wanted to find the next bitcoin.
The problem was that these utility tokens were never meant to be treated as speculative investments. Many regulatory agencies looked at the ICO activity and saw assets that weren’t registered as securities being treated as securities. Debates ensued. Legislations were enacted. Some projects found that they were suddenly no longer legal in the country they had been established in.
The Appeal of the Security Token Offering
Security token offerings can be seen as an attempt to give the people what they want: blockchain-based assets with real world value and regulatory backing. The general public may see security tokens as something they can finally understand – a digital representation of a concept they’re already familiar with.
Of course, security tokens and STOs don’t solve all of the problems standing in the way of mass adoption of cryptocurrency. Users still have to take the time to familiarize themselves with cryptocurrency wallets and the security protocols around them, and learn how to find a safe and reliable security token exchange if they wish to trade their tokens for other tokens or fiat currencies. There’s still room for STO investment scams, so would-be investors will still have to do their due diligence and ensure that the security token offering is actually presenting a legitimate, legal security token.
Those who are looking to invest in a security token offering should start by visiting an STO list. This will give them an idea of what their options are. Investors should look for a project that has a good website and whitepaper, a product that is ready to go to market, and a team with experience in the field. Beyond that, they should look for a project that they believe in and want to see succeed. Part of the problem with ICOs was that many of them proposed a solution either for problems that didn’t exist, or that already had a perfectly good non-blockchain-based solution. As you review projects on the STO list, ask yourself “Is this something that would make the world better? Is this something I want in my life? Do I know someone who would be really excited by this idea?”.
What Will the Future Hold?
The security token offering (STO) is on the rise, but that doesn’t mean that utility tokens are dead and gone. Many projects are still finding that a utility token is right for their purposes, and they are attempting new methods of token-based fundraising, such as token generation events (TGEs) and IICOs (Interactive Coin Offerings).
Still, the big money appears to have shifted to STO investment. VCs and angel investors who have been burned by ICOs are turning their attention to STOs, which share more in common with IPOs in terms of the rights and protections they offer the investor.
The future remains uncertain. While countries like Malta and Gibraltar have wholeheartedly embraced cryptocurrency, most jurisdictions are still trying to decide how they want to legislate and regulate security tokens and utility tokens. Just as it takes time for a new technology to catch on, it always takes time for the government to catch up to the pace of technology and enact laws that protect their constituents while still allowing innovation. We’ve seen some stumbles along the way, and it may take years for regulators and crypto innovators to be able to work together harmoniously.
This may mean that it still takes some time for the average person to be comfortable with security tokens. If they still don’t understand blockchain and cryptocurrency, they may not trust it even if it’s a security in full compliance with regulations.
What is the Role of the Crypto Community?
The switch to security token offerings doesn’t change a lot for the crypto community. Not for the hardcore members who are in it for the technology, at least. Some will reject STOs as being too far from the dream of decentralization. Some will embrace new hybrid models of crowdfunding. Others will just continue to HODL their bitcoins and watch from the sidelines.
The main thing that doesn’t change is the need to serve as an ambassador for cryptocurrency and the blockchain. If we do truly want mass adoption, and don’t want this to be our weird niche interest, we need to be prepared to explain to our friends, family, and co-workers what the difference is between an ICO and an STO and why it matters. We may even have to write to our lawmakers to offer our opinions on sensible legislation.
On Yavin is the founder and CEO at Cointelligence, the data layer of the crypto economy. He has extensive experience as a serial entrepreneur and an angel investor, as well as more than 20 years of experience in the tech industry. On uses his deep hands-on experience and knowledge of online marketing to create winning strategies for ICOs, crypto, and blockchain companies. Having earned the reputation of a crypto expert, On continues to contribute to this industry in ways that advance cryptocurrencies and blockchain technologies. On has a law degree (LLB) and is also a certified Advocate by the Israeli Bar Association.
Disclaimer: The views and opinions expressed by the author should not be considered as financial advice. We do not give advice on financial products.