The look of astonishment that a child’s face looks like when he is dazzled by the magnitude of the pyramid seen for the first time. This is what happened to me every day as I got deeper into the world of blockchain and in particular the financing and marketing of projects based on it. This was when my Egyptian-American friend Siddiq asked me in late 2017 to help him prepare the marketing plan for his project based on blockchain technology.
Blockchain is the beginning of a revolution, introducing new and ingenious solutions in many fields, including web and mobile application architecture, the economics, financing and marketing of projects.
Although this technology is the technology on which cryptocurrencies work and the most famous Bitcoin. But Blockchain technology can be used in many different fields, it has already been used in areas such as e-commerce, real estate, artificial intelligence, education, health, services, legal contracts, e-games, social media, digital content and more.
One of the most famous projects in the field of social networks is the website of Steemit that depends on Lee Steem Blockchain, which rewards the user for the content he puts on his Upvote likes. So far, the site has paid nearly $ 40 million to its users. The number of visitors to the site is currently about 30 million visitors per month, and in this article it will be clear where the money comes from? How does this business model work?
Financing by introducing the first digital currency
The biggest challenge for entrepreneurs and startups is finding funding for their budding projects. Despite the existence of venturing capital companies, investors and sponsors, startups are struggling to get funding.
In 2014, a genius solution to finance and commercialize startups emerged: the introduction of the first cryptocurrency.
In the first 3 months of 2018, more funds were raised to fund projects than in all of 2017. The volume of project financing through initial currency offerings was $ 11.8 billion this year until May, meaning more than double the $ 5.5 billion in 2017, according to the Wall Street Journal’s analysis of nearly 900 IPOs. Thus, financing through the introduction of cryptocurrencies became greater than the total funding raised through venturing capital and corporate finance companies.
To clarify the issue, let us first discuss the financing through the IPO in the Stock Exchange, ie offering a part of the company in the form of shares.Every stock exchange has conditions for listing companies, the most important of which is that the company does exist and not just an idea.
The Egyptian Stock Exchange has established a private exchange to which it belongs especially to startup companies called the Nile Stock Exchange. For example, the Egyptian Stock Exchange does not allow the listing of a company whose capital is less than 20 million pounds, while the Nile Stock Exchange allows the listing of a company whose capital is less than 50 million pounds.
Companies that meet the conditions of listing on the ASE are evaluated and part of it is offered in the form of shares – this is called an IPO – bought by investors. Then trading between investors occurs through a central entity (the stock exchange) and the greater the value of the company, the greater the value of the stock.
Cryptocurrency finance is a combination of an IPO and crowdfunding campaign. Companies create Token numeric codes, sometimes called numeric coins- But there is a fundamental difference between the numeric symbols and the numeric currencies that we will showcase later – These numeric codes act as the approved currency for dealing with the project. The emerging entrepreneur sets the minimum and maximum financial budget required to implement the project. He aslo determines the financial value of the project’s numeric codes. These digital codes are then put up for initial sale and investors buy the offered codes at almost 30% below their value.
Thus, the start-up company will have the necessary financial funds to establish and market the project. Then, after the launch of the project, the project’s numeric codes are traded as digital codes on the trading platforms.
Numeric codes obtained by investors may act as shares in the company. Under which they receive profits as in the IPO, some digital symbols when they are presented represent a stake in the project and others do not. In this case, the only gain or loss on investment in these numeric codes is the change in the value of the numeric codes when traded. Investors bet on that these digital codes will rise if the project succeeds.
Marketing of blockchain-based projects
Thus, the project’s digital symbols became the official currency for all financial transactions related to the project from buying, selling or even marketing the project. For example, a project can reward marketers for commission with these digital codes, reward the audience for their interactions, or pay for digital advertising.
There are now companies specialized in digital marketing of projects based on blockchain technology. Playing two important roles. The first role is marketing the idea of the project to get financing, and the second is marketing the project to the potential audience. Specialized platforms have emerged for this specific type of marketing as well as new forms of marketing. For example, it is possible to reward the ordinary audience in digital project currencies for their interaction or the interaction of anyone who comes through them, for example, coming from a post he puts on Facebook, these numeric codes are then converted into coins.
Chain blocks or blockchain
Blockchain is a technology that emerged in 1991 – yes in 1991 – a decentralized database spread over a large number of devices. Its idea is based on that every block contains data, which can be information about a sale, lease or any kind of data. It also contains the fingerprint of the data in the previous block, and also contains the fingerprint of the data in the current block.
So a series of blocks, each block contains the fingerprint of the previous block data. Hence, it is difficult to modify any block after it is placed. The authentication process is carried out by a large number of devices, which in the case of Bitcoin production, is upto 130 billion devices running in simultaneously. Yes, ladies and gentlemen, 130 billion devices. Blockchain technology is used in many fields, including digital currency, contracts and documentary credits.
There are several blockchain versions such as R3 Ethereum and Corda.
These types may be open to the public, or restricted to a particular category, or half open anyone can see the data, but the process of verifying the data shared by many devices is limited to specific devices.
Cryptocurrencies are difficult equations that devices compete to solve and take a long time to solve. After the device announces its solution, the rest of the devices make sure the solution, which does not take a long time. These currencies use blockchain technology as a decentralized database.
The sources of profit from this technology are numerous, including mining or speculation on the currency exchange or obtaining funding for projects that rely on blockchain technology.
The difference between Coin and Token
People incorrectly use the two words as having the same meaning, but there is a fundamental difference between the two concepts.
Currencies Token coins and digital symbols are classified under Cryptocurrency.
Coins, also called alt coins or cryptocurrency coins, are digital funds created with a special encryption system and are based on blockchain. In simple terms, it rewards money in the digital world and the most famous example is Bitcoin.
All transactions are restricted to distributed and open blockchain databases, which increases transparency and reduces fraud (yes reduces but does not prevent).
In general, coins are tied to a blockchain that is open to the public.Any person can participate in them, and those currencies can send, receive or be mined.
Token codes are digital assets issued by a startup project. Token codes can be used as a payment method within a project, in which case they are like Coins, but the holder of those Token codes is given the right to participate in that network. These codes act as digital assets so they can represent company shares and at the same time they can be given access to certain functions of the project.
To better illustrate; Token symbols can be represented as a cinema ticket. This ticket has a value that can be used at a certain time in a certain place, but it is not normal to use it at a restaurant to pay the bill.Symbols also have the same function as they have monetary value, but are used in a specific place at a certain time.
Token syntax is easier than coins, to create a symbol it is not required to create a new code or modify an existing code.Even use a standard template on a platform like Ethereum which depends on its own blockchain, Token icons can be created in simple steps.
In short, Coins are a means of payment whereas Token codes can represent shares of the company or are use to give access or ability to use of a specific service, product or function in a product.
You can buy Token symbols with Coins and not vice versa, currencies work independently while symbols work with a specific function within the project environment.
Conclusion
Investments this year have increased with the initial introduction of digital currencies despite strong scrutiny by regulators such as the Securities and Exchange Commission and widely publicized fraud. But big investors focused on technology are still keen on this type of investment. Funding for some projects has reached billions of dollars, and many of those projects have been funded from outside the United States.
Regardless of whether this technology and this kind of financing will prevail or will be limited, I think it is a golden opportunity for entrepreneurs and creative people to benefit from this technological revolution.