As discussed earlier, most company projects often rely on bank loans, project partners,and private equity. As a result, these projects often have complex, opaque financing structures that insert a multitude of middlemen into the picture. The SUT project is unique in that, instead of turning to complex dealings with middlemen, it turns to the power of tokenized crowd selling. Since crypto tokens are only possible thanks to blockchain technology, the next section will describe this new technology in further detail.
A Chain of Blocks1
A blockchain is a distributed ledger that does not rely on a centralized intermediary to authenticate transactions. Instead, copies of digital records are stored across a network of replicated databases. These databases, or ledgers, are distributed among a large number of participants in the network. Each network participant runs a “node” program on their computer that allows them to store a copy of the entire blockchain ledger.
A network node can be run by anyone with a computer, and any computer running a node will have an identical copy of the network’s ledger. Because these nodes are operated by a multitude of individuals and groups spread across the world, the identical copies of the ledger are considered to be “distributed” and decentralized. In order to change this distributed ledger to reflect new transactions that take place, the new transaction must first be verified by a special subset of network participants known as “miners.”
The verification process begins when a new transaction is first initiated. At that moment, the transaction is grouped with other recently initiated transactions.This group of recent transactions is called a “block.” Each block is protected by a cryptographic puzzle that can only be solved by computational brute force.In other words, a large amount of processing power must be used to methodically run through every possible solution to the puzzle until the correct solution is found. Miners compete to be the first ones to solve the cryptographic puzzle for a given new block. The first miner to find the correct solution validates the authenticity of all the transactions in the new block. As a reward for validating the block, the miner will receive a certain amount of crypto currency in return.
Once validated,the new block is linked to the older blocks that have already been validated.In turn, those older blocks link back to the blocks that were validated before them. These links go all the way back to the first block ever created, for ming a chain of blocks—or blockchain. The blockchain runs from the first validated transaction to the last and therefore serves as a ledger for all transactions.A copy of this blockchain ledger is stored on the computer of every participant who has agreed to act as a node in the network. These copies are constantly being updated across the entire network so that each participant’s copy of the distributed ledger is identical to all the other copies.
Moreover, each network of distributed ledgers functions as its own ecosystem. For example, the Bitcoin network is composed of its own ledger and nodes, with its own blocks verified by Bitcoin miners.
- “How does the Blockchain Work?” by Collin Thompson https://medium.com/blockchain-review/how-does-the-blockchain-work-for-dummies-explained-simply-9f94d386e093
The Bitcoin ecosystem is separate from other networks such as Ethereum, which also has its own ledger, nodes, blocks, miners, and coins.As of November 2017, Bitcoin and Ethereum are the two most popular crypto currencies in terms of market capitalization. Bitcoin has a market cap of about $183 billion while Ethereum has a market cap of about $45 billion.2
Ethereum and Smart Contracts
Although Bitcoin is currently the most popular crypto currency, Ethereum has recently shot to fame due to its enhanced functionality, which offers certain advantages over Bitcoin. The Ethereum platform was built with a programming language that allows transactions to go beyond the simple exchange of value. Unlike Bitcoin transactions, Ethereum transactions can also include code that is automatically executed when a given set of conditions is satisfied. These conditions are defined by a “smart contract,” which also defines the code that will be executed upon satisfaction of the conditions.
As a result,the exchange of ether (the Ethereum coin) can be linked to actions that are automatically executed by the smart contract. For example, someone could theoretically build a smart contract to automatically transfer one ether from Party A to Party B every time it rained in Paris. In that case, the smart contract would pull in data from an objective weather source and then make the transfer automatically whenever the necessary condition of rain was fulfilled.
For the fund raising industry, this innovation has been revolutionary. Ventures across the world can now issue their own token smart contracts. Whenever a token buyer sends crypto currency to the contract, tokens representing some sort of benefit will be sent back to the buyer. Usually, these token sales take place over a fixed period of time and are commonly referred to as initial coin offerings (ICOs).
Token benefits vary from venture to venture. Often, the token will give the buyer the future ability to use services on the platform being built. In other cases, the token can offer the buyer access to some sort of investment return, dividend, or interest payment. With the first ICO having taken place in 2013, this industry is still very new and in a constant state of development.
The SUT Token belongs to a sub-class of token that is considered to be “asset backed.”Asset-backed tokens are becoming very popular due to several advantages that they offer. While some tokens are purely speculative with value being driven only by market sentiment, asset-backed tokens are supported by something that actually exists. As the name suggests, an asset-backed token is backed by one or more underlying assets that have real-world value. The token therefore gives claim to some proportion of the underlying asset or, more practically, the equivalent value thereof. In practice, the underlying asset typically needs to be sold or bought back by the original owner in order for the proceeds to be proportionally distributed among token holders. As more asset-backed tokens are developed, crypto markets will see greater variations of the rights and benefits offered to holders.
2. Coin Market Cap (coinmarketcap.com) as of December 1, 2017
When it comes to Medical Chain project, asset tokenization blends the best of both worlds.Firstly, the token enables holders to directly fund the project of their choice. This freedom of choice makes the token superior to other options like medical industry exchange-traded funds (ETFs), which provide access to a mix of companies chosen by asset managers not the individual investor. Secondly, the existence of secondary token markets gives asset-backed tokens a level of liquidity that is more akin to ETFs while maintaining the level of choice and control that private investors enjoy.
Why blockchain for Sutrarak Medical Chain?
At SUT, we are excited about the potential that blockchain technology has to improve project finance. Below, we explain how token sales bring decentralization and liquidity to projects that have traditionally been closed off and illiquid.
Decentralized Funding for Medical Chain Network Projects
For Medical Chain Network and Medical Health Monitoring projects, there are compelling reasons to use blockchain-based tokens as a crowd funding vehicle.Traditionally, SUT project financing has remained exclusively in the hands of a small number of actors. The SUT Token aims to change this by acting as a model for distributed participation in SUT projects. With this distributed funding model, projects can rely less on a small group of actors and instead be supported by the public. It is true that traditional participants will continue to play an important role in large energy projects. However, individuals can now be the decisive actors who drive these projects forward.
Providing Liquidity to an Illiquid Investment
In addition to decentralization benefits, token sales also bring liquidity benefits to SUT projects. Private equity investments in SUT project are typically highly illiquid, with capital locked into the project until revenue can be generated through oil production. By contrast, asset-backed tokens can be traded on secondary markets. Token holders can therefore release capital by selling their tokens on secondary exchanges at market prices. In comparison, traditional private investors must go through a lengthy, complex divestiture process to achieve the same end.