Blockchains and digital currencies are the latest financial technological innovation of today's increasingly complex financial structures. Since it came on the scene in 2009, we have watched as the block chain technology has gone from insignificant and underrated to a serious factor in global finance payment methods and structures.
Traditional financial institutions feel increasingly threatened by this revolutionary digital product because it tends to close the gaps and loopholes in traditional banking and financial management by offering its users more control over how they spend their money, more flexibility, privacy, transaction tracking ability, and overall accountability.
Not to mention that it is a user to user platform, which threatens the relevance of banks and other financial institutions as middle men between users.
So what makes blockchain so great? Why are people increasingly venturing into the world of digital finance? One of the biggest factors is the security model of the blockchain, that makes it extra difficult to hack a financial transaction.
This is because structurally, the blockchain is simply a public ledger that keeps a detailed and traceable record all transactions between users and stores it on a myriad of networks across the globe.
So one would more or less have to simultaneously control all the networks and servers carrying a transaction's information before they can perform a successful hack. This security model makes the risk of a hack considerably less, thereby raising the confidence level of blockchain users and investors.
The unprecedented and massive success of the blockchain model has forced financial institutions and governments to begin to take it seriously, as they have begun to work on ways to integrate this technology into their business operational strategies and financial policies.
This move has led to countries like Japan and Switzerland accepting bitcoin as a legal method of payment for goods and services with the later making bitcoin VAT-free nationwide.
Does blockchain signal the end of conventional investment as we know it?
The potential for the blockchain revolution to become the dominant vehicle for mainstream investment is massive, due to its transparency, independence and security.
Another reason for the potentially astronomical success of blockchain investment is because traditional investments are difficult to process for the average person.
Most times, investing in businesses via stocks or bonds feels like a privilege reserved solely for the elite. From sourcing investment opportunities to applying for them can prove a very rigorous and tiring process.
Most IPOs require stringent prerequisites for investing in the business it promotes, usually along with a minimum investment amount that proves too high for the ordinary person.
Many times, to be able to invest in these high calibre funds, one would need to hire an investment professional to help broker the deals, and these experts don't come cheap either.
On the part of businesses, setting up and IPO requires tons of paper work while registering with the Securities and Exchange Commission and every relevant body at Federal and State level.
Not to mention the extent of evaluation they'll have to go through before approval while experiencing limited business operation policies imposed on them by the SEC.
The emergence of blockchain technology has completely turned the table as it continues to redefine the art of investing.
Businesses and investors — especially small budget investors — have naturally flocked to the world of digital money and investment, as it offers less stringent qualification criteria, much lower investment entry budgets, and longer investment periods.
The Age of Tokenized Investments
Investors and businesses alike have actually been fighting the world of traditional money and investing for a long time.
This search for an alternative method of sourcing funds and investing have led to various innovations such as online peer-to-peer lenders who are relatively slack on investment requirements, and crowd funding platforms where investors ask for nothing in return.
But the cryptocurrency-blockchain investment model has threatened to blow all these prior investment innovations out of the water.
Crypto investments began in 2013, but became popular in the following year with the massive successes of campaigns such as those prepared by MAIDSafe, Ethereum and more recently, Brave.
So how does investing with crypto currencies on the blockchain platform work? Through a simple idea called the Initial Coin Offering (ICO).
At first glance you may feel like this is just a digital spinoff of Initial Public Offerings (IPO). A closer look, however, will expose the plethora of differences between them.
With ICOs, businesses and ventures seeking funds to run or expand their business will prepare an ICO, offering investors a value percentage of the business in the form of tokens. These are also cryptocurrencies and are created on the blockchain platform as well. They can be traded by investors for other cryptocurrencies or a fiat currency from a few days after the close of the ICO, after their value must have appreciated of course.
And how exactly does this happen? Most companies that leverage ICOs to garner funds, create these tokens to use as an in-house cryptocurrency that will be used to handle the operation of the company's product or services.
Let's say, for instance, that a gaming company needs money to develop their best game yet. They set up an ICO, gather funds and distribute tokens. The investment gathered by the company is used to fund the development and launch of the game. The tokens then become the official in-game currency, if it's a game that requires purchases to keep playing. Gamers will now use these tokens to purchase items within the game.
As the game gains traction and popularity, it attracts more users, which means that there will be more and more purchases happening within the game and more token transactions being made. Now we all know that the more a currency is transacted with, the more the demand for it, which ultimately causes a rise in value of the currency.
The same goes for tokens; increased purchasing frequency within the game makes them for valuable, thereby yielding the investors a profit on their investment whenever they trade them in for other currencies, whether crypto or fiat.
Most successful ICOs record significantly high profit margins and are fast becoming a preferred investment vehicle for frequent investors, an assertion echoed by Sergey Vasin, Chief Investment Officer of Blackmoon when he said,“Tokenized funds are totally more cost-efficient thanks to lower infrastructure and setup costs. This economy is transmitted to investors in the form of higher net return. For the cherry on top, fund tokens are also immediately tradable"
Unlike the IPO, these ICOs last much longer, usually about a month at the minimum. This gives ample time for interested investors to come up with sufficient funds to invest and helps business owners retain absolute control of their businesses, without having to answer to any major investors and shareholders.
With an accepted blockchain wallet and a little cryptocurrency amount, anyone can invest in almost any ICO campaign.
While this is great news for any average investor, many venture capitalists, angel investors and investment firms are still concerned about the risk factor and lack of regulation in crypto and blockchain investing.
Considering the amount of money they traditionally invest in businesses, you can't blame them for being hesitant.
So is cryptocurrency and blockchain technology a good thing? Are ICOs truly what the world of investment need?
There is no simple answer to these questions. With the increasing pressure to integrate digital finance methods into our every day lives, and with the push for regulation by top investors, financial institutions, businesses and governments, no one can definitively state how things are going to turn out.
However, we can be sure of one thing, cryptos, blockchain and digital investment are not going anywhere anytime soon — or ever.