2018: The Year of Utility

The Future of Utilities

What is a Security? What is a Utility? 

A Security token is one that allows an individual to own an asset without taking possession (grants ownership rights). A security is determined by The Howey Test.[1]  

The price of a Security is derived from a third parties work and is expected to pay back dividends, revenue share, or price appreciation.

A Utility token represents access to a companies product/service, allowing them certain functions within the companies platform and that makes them exempt from regulation and security laws. 

The price of a Utility is derived from the increase in demand for the product/service. 

I believe that in 2018 we will see the utility token flourish over securities. Companies such as ETH, and EOS, who are aimed at solving real world problems and providing services within their platforms will stand to see the most growth. Eth has seen an increase in price from $158 (May 28th 2017) to $558 (May 28th 2018) a 353% growth and hitting as high as $1385 on Jan 14th 2018. Eos has seen an increase in price from $0.99 during ICO to $12.29 a 1281% growth and hitting a high of $15.66. With the overall market growing from $73.68 billion to $324.53 billion a 440% growth. [2] A clear sign that demand for these services is increasing all while overall market adoption is still low. As we see the market slowly grow and evolve, we will see a increase in products/services offered using utility tokens.  There will be a number of companies that will be born out of the necessity to solve the problems that will undoubtedly be created as we move closer to mass adoption. 

A survey by Finder, found that less than 8% of americans own cryptocurrency, showing that mass adoption is far from here. [3] Over the next 7 months, we will surely see an increase in adoption, as crypto has been making its way into mainstream media more and more, which means we will see an increase in demand for these utility tokens. 

As the year continues, we will see more ICO’s than ever before and most of them are going to be companies that have real world applications. Blockchain technology has been revolutionizing the way we do business, and is slowly making its way into existing infrastructures. We have seen Ripple (XRP) become one of the fastest growing cryptocurrencies in both market cap and mass adoption into the real world, as it aims to create a frictionless network for sending money globally between banks. 

Market Statistics 

In 2016, We saw ** 43 different ICO’s with a total of $95,181,391 raised.In 2017, We saw 210 different ICO’s with a total of $3,880,018,203 raised.In 2018, as of May 27th, We have seen 343 different ICO’s for a total of $8,920,376,614 raised so far, putting us on par for a total of $22,300,941,535 and approx 857 ICO’s barring any exponential growth.[4]
While utilities have been the favorite way for companies looking for startup funding Unfortunately “only about one out of 10 tokens issued in initial coin offerings is in use following the sales”[5] 

SEC Ruling on Securities

“Any issuers of distributed ledgers or blockchain technology-based securities must register offers and sales of* such securities [with the SEC] unless a valid exemption exists.” [6][7]

“Those participating in the unregistered offerings also may be liable for violations of the securities laws.” [7]

“Additionally, security exchanges providing trading in these securities must register unless they are exempt.” [7]

It will also be important for investors to be weary of ICO’s that describe their token as a utility in order to circumvent regulations and securities laws. “The SEC’s report of Investigation found that tokens offered by a “virtual” organization known as “The DAO” were securities and therefore subject to the federal securities laws. [7] It’s always important to do your own research before investing in anything, but it now requires the investor to ask themselves whether or not the token is really a Utility or not. In the end, there will always be regulations on the market, and it will be the responsibility of every party involved to make sure they are on the right side of the law in this regard.

In conclusion, as the market grows and cryptocurrencies start to become mass adopted, we will see an influx of ICO’s who will provide a service and raise funds in the form of Utility tokens and see fewer Securities on the market as regulation moves out the grey area into a more defined roll on the market.

[1] The Howey Test determines that a transaction represents an investment contract if "a person invests his money in a common enterprise and is led to expect profits solely from the efforts of the promoter or a third party,"

[2] https://coinmarketcap.com/ 

[3] https://www.finder.com/why-people-arent-buying-cryptocurrency

 [4] https://www.coinschedule.com/stats.html?year=2016

[5] https://www.bloomberg.com/news/articles/2017-10-23/only-one-in-10-tokens-is-in-use-following-initial-coin-offerings

[6] https://www.sec.gov/smallbusiness/exemptofferings

[7] https://www.sec.gov/news/press-release/2017-131