The latest trend in digital tokens may be the purchasing power of minority communities.

Companies from Kodak to Atari have employed the blockchain--a decentralized ledger for recording transactions--as an alternative to traditional financing. Now, fringe organizations are beginning to follow suit, and certain businesses may be the biggest beneficiaries.

On Thursday, the LGBT Foundation, a Hong Kong-based non-profit aimed at supporting gay, lesbian, bisexual, and transgender individuals globally, announced that it would launch its own digital token on the blockchain. The goal, explains the organization's president Christof Wittig, is to generate capital to support LGBT individuals suffering from persecution around the world. Meanwhile, several LGBT-run businesses in the San Francisco Bay Area have already agreed to accept the "pink dollar" as payment for goods and services. Wittig, who is also the founder and CEO of the San Francisco-based gay social network Hornet, notes that his company will be the first to accept the token as compensation from its more than 25 million members, who pay a monthly or annual subscription fee. 

The benefit of transacting with these "coins," analysts say, is that they can be traded freely on online exchanges, and therefore offer greater liquidity to investors than more traditional equity investments. During so-called "initial coin offerings" (ICOs,) or financing events in which digital tokens are made available to the public, some businesses have raised the equivalent of millions in real-world cash. Although more than half of ICOs globally failed to generate any value in 2017, startups that succeeded raised as much as $5.6 billion collectively, averaging more than $12 million apiece, according to recent research from the venture fund Fabric Ventures and the cryptocurrency data provider TokenData. Generating real-world cash is indeed Wittig's goal: The foundation aims to raise $50 million through an April coin offering.

"Merchants understand very little of the purchasing power of this community," the entrepreneur tells Inc., noting that with annual spending nearing $1 trillion, gay consumers rival other minority groups with their disposable income. "The blockchain allows brands to offer service targeted to LGBT members, in return giving them better understanding about the demographic."

In addition to supporting LGBT-run businesses, the foundation hopes to raise sufficient funding to operate independently and help support its activism goals. "We believe that we can create a funding mechanism out of this token to direct capital to causes that are important to the LGBT community," says Wittig.  

It is still early days for blockchain technology, however, and there is a fair amount of risk involved with creating one's own virtual currency.  It's worth considering the extent to which investors will be aware of (and indeed interested in) purchasing the tokens. Remember that just 435 out of a total of 913 ICO attempts were successful in 2017, according to the TokenData report, which means that more than half of them failed to create any value.  Meanwhile, some investors are leery of investing in digital tokens for fear that the network will be hacked. Just last month, the Japanese virtual currency exchange Coincheck announced that hackers stole some $530 million from investors during a recent security breach. The decentralized nature of the blockchain has indeed made it an attractive platform for criminals, drug traffickers and, more recently, terrorist organizations such as Islamist Jihad.

Wittig says he's clear-eyed about the dangers involved, however. "We are absolutely concerned about making sure that everyone who participates will be safe, and that it will benefit merchants and consumers," he says. To that end, the foundation is partnering with a number of experienced cryptocurrency investors and security analysts to design a "meaningful" token, he adds.

The goal, says Witting, is to help LGBT people realize their full economic potential, or what's sometimes referred to as the 'pink dollar.' "This is about taking our destiny into our own hands, and I see our power as a community if we come together."

Published on: Feb 22, 2018