Brilliant or Dumb? Traditional Companies Eye Cryptocurrencies

With cryptocurrencies struggling to recover from a major slump, y'all'd wait well-established companies to avoid the cryptocurrency and blockchain landscape altogether. Instead, companies with well-known products and services are because proprietary cryptocurrency.

In May, Facebook said it would form a blockchain group and was interested in creating its ain cryptocurrency "to let its more-than-2 billion users to facilitate transactions without government-backed currency."

Facebook is one of several "centralized" companies looking at decentralized technologies. And like everything that has to do with blockchain and cryptocurrency, their initiatives range from bright to cool.

The Rise and Fall of ICOs

Initial money offerings (ICO), whereby a visitor bug its ain digital token on the blockchain, are i of the hottest and virtually controversial topics surrounding cryptocurrency. Anyone from investors to enthusiasts can purchase these tokens with cryptocurrencies such as Bitcoin and Ether. Blockchain startups use ICOs, also referred to equally "token sales," to fund their projects.

The basic proposition is that one time the company develops and launches its awarding, users will need tokens to admission its features or purchase services. Issuers usually encourage people to purchase tokens by selling them at discounted prices during the ICO or promising that, like Bitcoin and Ether, their value will increase in the future every bit the application rises in popularity and its user base of operations grows.

ICOs raised more than than $5.6 billion in 2022. But many of the projects that launched ICOs were abandoned or turned out to be outright scams, leaving buyers with a bunch of useless coins and creating a general sense of mistrust toward ICOs and the companies backside them.

Established Companies Launch Their Own Tokens

This has not prevented established companies from engaging in token sales and cryptocurrencies for unlike purposes. Depending on the goal, traditional businesses can issue their ain cryptocurrencies to decentralize their business models, raise new investments, or launch new blockchain-based services.

Some companies are transitioning to a full decentralized model. One instance: Telegram declared last year that it volition launch Telegram Open up Network (TON), a blockchain-based version of its messaging app. TON will exist supported by its proprietary cryptocurrency, Gram, which will enable payments and diverse applications on the platform. Since TON is fully decentralized, owners of Gram tokens will also be company shareholders and have a stake in the growth of the platform.

Whether Telegram is moving in the right direction is hotly debated. The company canceled its public token auction because it had already raised $one.seven billion from private investors, which raises dubiety over how decentralized its end product volition be.

Just regardless of whether Telegram will serve as a successful example, the move toward tokenized models has its proponents.

In-App Payments

Launching a proprietary cryptocurrency doesn't necessarily require a visitor to decentralize its entire business model. Some companies apply them to expand their applications and offer new services and features to their users.

An example is the messenger app Kik, which raised $100 million in an ICO for its crypto-token Kin last year. Unlike Telegram, Kik will non port its entire application to the blockchain, but users of the app volition be able to use Kin for in-app payments. Beyond payments, the company believes Kin will let it build an ecosystem that rewards developers financially without having to rely on advertising.

"Crypto-tokens can enable companies to create royalty programs in their applications, with which companies tin can advantage their customers past giving them tokens to redeem special products or offers," says Ji Sheng Tan, co-founder of Trivechain Foundation. Tan explains that while tokens are not suitable for all types of businesses, some industries can leverage them to enhance their business model.

"For instance, online services with tokenized models tin can help companies in the retail manufacture to appoint customers in new ways," Tan says. He names WeChat as an example of a social media platform that has created an entire economic system through its in-app payments.

Kik recently launched Kinit, an independent app in which users can spend their Kin tokens on souvenir cards from different online stores. The app also gives the users the power to earn Kin by completing survey and polls, some of which are sponsored by Red Bull and Swarovski. This model enables brands to engage and reward users without bombarding them with annoying ads.

Per Cheddar, Facebook has said it will not launch an ICO and is more likely to launch its cryptocurrency through an airdrop: a process in which the company gives tokens to users for free. Although the company has yet to declare the total details of its crypto plans, in-app payments is a employ case it's already shown an involvement in, and it can be a boon to users and companies that rely on the platform for their daily business.

Established Companies Can Succeed in Crypto

Since cryptocurrencies are limited-supply assets, their value rises as demand grows. Just part of the challenge every blockchain startup faces when launching a new application is attracting users to their platform. Without enough users to circulate the token, it will chop-chop lose its value to the detriment of holders and issuers.

This is a problem that companies such as Facebook, Kik, and Telegram won't face. They already take strong user bases, which means there will probably be no shortage of need for their tokens once they integrate them into their applications. Though its ecosystem is nevertheless in development, Kin has already claimed the No. 1 spot on the list of most agile tokens running on the Ethereum blockchain.

FaceCoin, or whatever Facebook plans to name its cryptocurrency, also has a great chance of succeeding. The visitor already allows payments through its Messenger app, but only when connected to a debit carte or PayPal accounts, which is not an option for a large portion of Messenger's 1.three billion users. With a lower archway barrier, cryptocurrencies enable more than users to brand peer-to-peer payments through Messenger, which could brand Facebook'south token the nigh popular cryptocurrency once information technology launches. And contrary to centralized in-app currencies, cryptocurrencies permit users purchase or sell them on decentralized exchanges and other digital marketplaces that are unrelated to their native platforms.

Blockchain startups also take a trust problem. Numerous failed blockchain projects have fabricated investors reluctant to buy a money backed only by a flashy website and a white paper that promises to solve a problem without solid proof of being able doing then. In contrast, an established visitor already has a working business model and teams of developers and executives with track records of delivering on their promises to create and run online applications.

Blockchain Isn't Correct for Every Company

All of this doesn't mean you should trust every traditional visitor that embraces cryptocurrency. In fact, many companies take tried to apply the hype surrounding blockchain and cryptocurrencies to raise funds or heave their shares.

Last Dec, Long Island Iced Tea Corp., a company that had been suffering from declining sales, changed its name to Long Blockchain Corp and its shares soared over 289 percent. The company alleged that it was looking to partner with blockchain companies simply had trivial to say most the details of its plans and what blockchain had to do with absurd beverages. It after became evident that two months before the company's meaningless pivot to distributed ledgers, Nasdaq had threatened to delist it considering its market capitalization was too low. The name change had merely enabled the company to stay afloat for a few more than months.

Another case is Kodak, which saw its stock value jump 60 percent afterward declaring in Jan that it would exist launching its own blockchain platform and cryptocurrency, KodakCoins, to manage buying of digital and enable photographers to sell their work and receive payment on the blockchain. Simply critics and investors remain skeptical near Kodak's conclusion; some defendant it of using "blockchain" as a buzzword to revive its declining performance.

Blockchain is non a solution for all centralized companies, and anyone planning to invest in any sort of cryptocurrency tied to a traditional company should bear their own research and due diligence.

"There's an ongoing debate near whether blockchain is applicable to every concern and product," says Alexander Tkachenko, founder and CEO of VNX Venture Exchange. "Using blockchain every bit a technology only makes sense in specific situations relating to ecosystems and businesses where there are large networks and therefore a huge network effect."

Tkachenko believes large social networks are suitable examples, because users are straight involved in creating the platform's content, and information technology'due south hard to govern large networks in a centralized manner. But for smaller companies and businesses where users are not tightly integrated into the creation of products and services, it doesn't brand much sense.

"Blockchain emerged to allow people to cooperate by creating economic incentives to achieve a common goal. This is what makes blockchain and tokens and so promising," Tkachenko says.