This document discusses cryptocurrencies, blockchains, and initial coin offerings (ICOs). It defines cryptocurrencies as digital currencies that use encryption to regulate currency units and verify funds transfers without a central bank. Blockchains are distributed digital ledgers that publicly and securely record transactions. ICOs are campaigns that sell a percentage of cryptocurrency to backers in exchange for legal tender or other cryptocurrencies. The document outlines different types of cryptocurrency tokens like coins, utility tokens, and tokenized securities, and discusses how their values are determined. It also compares token investments to equity investments.

1. Cryptocurrencies
and ICOs
© 2017 Mikko Alasaarela, Inbot, Inc

2. A digital currency in which
encryption techniques are used
to regulate the generation of
units of currency and verify the
transfer of funds, operating
independently of a central bank.
What is a cryptocurrency?

3. What is a distributed ledger?

4. There are centralized,
decentralized and distributed
cryptocurrencies. Ripple is a
centralized, Bitcoin a
decentralized and IOTA a
distributed cryptocurrency.
How does it work?

5. A digital ledger in which
transactions made in Bitcoin or
another cryptocurrency are
recorded chronologically and
publicly, and secured using
cryptography.
What is a blockchain?

6. Protocol defines the rules of the
token generation and
distribution. Protocol tokens are
used to pay for the use of the
decentralized resources. Apps
are smart contracts that run on
top of the protocol, and can have
their own tokens. Ethereum ERC-
20 is the most popular way to
implement a crypto token.
Cryptocurrency stack

7. Token types
Token Type Examples Description
Coin / Currency Ethereum,
Bitcoin,
Litecoin
Digital currencies like Bitcoin in which encryption
techniques are used to regulate the generation of units
of currency and verify the transfer of funds. They are
operating independently of a central bank.
Utility Token Steem, BAT,
Siacoin
The utility tokens are services or units of services that
can be purchased. ICO of an utility token can be
compared to a Kickstarter campaign to purchase
products or services in advance.
Tokenized
Securities
Trust Token Tokens are representing shares of a business. Utility
Tokens that can appreciate in value without the work of
the token holder based on value created by others are
classified as Tokenized Securities. ICO of a Tokenized
Security has to follow the rules of financial regulators.

8. Token value basis
Token Type Examples Value basis
Coin / Currency Ethereum,
Bitcoin,
Litecoin
The value of generic cryptocurrencies are based on
supply and demand driven by the network effects. Value
can increase when more people buy in, or when the
amount of available tokens is limited.
Utility Token Steem, BAT,
Siacoin
The value of utility tokens is based on the value of
services that you can purchase with the token, as well
as supply and demand for those services.
Tokenized
Securities
Trust Token The value of tokenized securities is based on the value
of underlying assets they represent, as well as the
growth rate of the value of those assets. The markets
will decide the growth multiplier in stock market type
mechanism.

9. In an ICO campaign, a
percentage of the cryptocurrency
is sold to early backers of the
project in exchange for legal
tender or other cryptocurrencies,
usually Bitcoin or Ethereum.
What is an ICO?

10. Token vs. Equity Investment
Issue Tokens Equity
Liquidity Buy and sell any time you
wish.
Invest only during funding rounds,
sell only in exit.
Valuation basis Based on the value potential
of the community being
created.
Based on growth potential of a
company, P/E, team.
Governance Usually decentralized, even
when centralized, there are no
special rights available to
token holders. Monetary policy
and token type decide how the
token behaves.
Investors try to protect their
investment with board seat,
liquidation preferences and other
provisions.

11. Thanks.
Mikko Alasaarela
Founder, Inbot
mikko@inbot.io