“The rich invest in time, the poor invest in money”. – Warren Edward Buffet
A fresh fever has overtaken some institutional subsets of the technology industry. What if companies had a quicker, secure, and a more democratic way to raise money using digital currencies?
The crusade to explore alternate ways for a new company to raise money has given rise to many attempts, but nothing compares to the 2017 rise of ICOs (Initial Coin Offerings). An Initial Coin Offering is used by startups to avoid the harsh and standardized capital raising process necessary for enterprises, capitalists and banks. An ICO involves selling of a new cryptocurrency or token at a sale, which helps the company raise capital.
Mastercoin was the first ever ICO back in 2013, which raised approximately U.S $600,000 for a project to create a bitcoin exchange and platform for transactions. An ICO is often compared to an IPO. Although ICOs tend to remain open from a week to a month, or can even go longer than that, IPO’s are a one time event.
Some crucial characteristics of an ICO are:
Presence in a project, economy or Decentralized Autonomous Organisation (DAO).
There are two subjects: ICO coin and ICO token. While coin ICOs usually sell units for participation in an economy, token ICOs sell a right of ownership.
Owning tokens does not necessarily give the investor the right to vote on the direction of the project or DAO. Generally the investor will have access throughout a project’s lifespan.
Most ICOs issue a fixed number of coins and tokens preceding the sale.
ICO prices are commonly set by the developers of the economy, project or DAO.
ICOs may conduct multiple rounds of trading with coins and tokens on sale to increase the value till the release date approaches.
Once the coins and tokens are ready for trading in the market, ICOs come to an end.
How do ICOs work?
Any start-up needs to set up protocols, rules and establish a blockchain network before announcing its ICO. For mineable platforms, mining of the coins to be traded in the ICO starts soon after the ICO is announced. Social media, Reddit and other cryptocurrency related websites are used for the social promotion of the sale to attract investors from all across the globe.
Coins or tokens are then listed by the creators on various exchanges to facilitate trading. The investors require an account with this exchange in order to purchase the new cryptocurrency in exchange of other digital currencies or fiat money.
Ongoing and upcoming ICOs can be reviewed on several websites. There are selected exchanges that handle the trading and investors can even purchase coins directly through the developer’s official website. Bitfinex, Bittrex, Kraken, Poloniex are some of the known exchanges, though there are many more. While venture capitalists tie up investor money for a long duration of time, an ICO is comparatively far more liquid and easily assigned within a much shorter span of time. The liquidity is, of course, a contributory factor to the growing number of ICO’s as the process of documentation and meeting unnecessary demands is not required.
Let’s take a look at some of the most successful ICO’s of all times:
Ethereum
Vitalik Buterin must have done something right to make his cryptocurrency stand at the second number of the most successful digital currencies.
Initial token value : $0.311
All time high price : $1,420
ROI: 152,500 percent.
NEO
NEO is a Chinese open source blockchain which was founded by Da Hongfie. It deals with smart contract applications, digitized assets and much more.
Initial token value : $0.032
All time high price :$180
ROI: 114,000 percent.
ARK
Ark integrates cryptocurrency in its own blockchain. Like any other platform ARK is also popular for its decentralized nature.
Initial token value : $0.04
All time high price : $10.78
ROI: 35,400 percent
PARTICL
Particl is focussed mainly on security. Particl is both decentralized and a cryptocurrency focussed on invisible transactions.
Initial token value : $1.50
All time high price : $52.50
ROI: 3,495 percent.
Conclusion
It is assumed that ICOs will shape the future of blockchain because the two are closely linked. Blockchain can only advance if creators can remain flexible in raising funds. ICOs have undoubtedly reached a certain level of success, but there are some loopholes like lack of regulation. However, with the growing popularity of Initial Coin Offerings, that is changing with time. For an investor, it is important to note all the risks, as well as the benefits before investing in an ICO.