There is a term that has become quite popular in this our current times- ICO, Initial Coin Offering. It is as crazy as it is innovative. So what the blip is it you ask? Well, it is the idea of preselling the coins of a cryptocurrency or token derived for a particular blockchain project for the sole purpose of advancing their development. Did you get it? Basically, I am selling you a product that I haven’t made yet in the hopes that you will have faith enough in my value proposition for you to buy in.
Since the dawn of 2013, ICOs have been used to fund the development of new cryptocurrency projects. It has proven to be quite an adept financial instrument and has seen the advent of a new crop of investors. But of course, the old Latin rule stands, caveat emptor, buyer beware.
It is a general rule of thumb that before one makes an investment, one must do their due diligence. ICOs and Token Sales Offerings come with their technicalities, legal, business and financial. It is part of the crowdfunding concept that creates the possibility of raising an inordinate amount of money within a short period of time. It is Crowdfunding 3.0. There are benefits and disadvantages to conducting ICOs, not to mention the disruptive aspects to the traditional funding models. I think it goes without saying that there are massive opportunities. It involves no third parties or mediators and it reduces the involved as a consequence. Traditional crowdfunding platforms such as the usual suspects, Indiegogo and Kick starter function as third parties, which augments the financial cost. This calls into effect the question of efficiency, which is essentially how it works.
Usually what carries on is a noveau cryptocurrency is developed on such platforms as Openledger, Counterparty, and Ethereum, which I believe is a superior platform. The price is arbitrarily determined often by the perception of the worth of the network at its current stage of development. If the participants of the network agree to that price point, then you have a successful ICO, other factors inclusive. After which, the market rules; the dynamics of price is the name of the game. You wouldn’t be slighted to think that investors are generally taking a gamble. Who knows what the price will be in the next two years, even in the next 2 minutes, nevertheless it doesn’t stop them. Especially with the shiny gains that have been realised by several cryptocurrency projects such as Ethereum, which topped expectations with a price point of $60 and a market cap of above $4 billion dollars. Notably, Montero and NEM have seen a 2000% increase in their value. Furthermore, investors have the option of cashing out to a fiat-backed currency or tarry for the currency to rise or fall depending on the winds of fortune.
Investors also like the ICOs because of the increased velocity of profits as opposed to the custom of locked in funds in businesses, particularly in start-ups where one must await a set time to see the realisation of desired profits. With ICOs, one needs only convert the cryptocurrency to fiat without any major difficulties while the latter offers quite formidable challenges, that is not to say that the former doesn’t present extreme problems. One of them being the regulatory inconsistency associated with cryptocurrency, though it’s beginning to take shape, with Japan for instance, which ruled positively on the legality of Bitcoin. Not to mention the blatant scams, pump and dumps, and sophisticated Ponzi schemes.
Some of the successful ICOs include the recent successful Humaniq ICO, which raised $5million from which HMQ tokens are being traded in several exchanges. And one of my favourites, the Ethereum Movie Venture, which raised over 300,000 USD in 3 weeks, all before the 8 weeks funding schedule was finished. There have been quite a great deal of ICOs that have raised significant money.
More than $270 million dollars has been acquired in ICOs, excluding the DAO conundrum according to Smith and Crown. At any rate, ICOs are here, being up there in the top funding strategies of our current world, playing a huge role in the development of open-source technology, and breeding a new crop of investors.