- 09 Jul, 2018
Cryptocurrencies are gaining popularity; with bitcoin surpassing $4000 mark more recently. Over 800 digital currencies contribute to the total cryptocurrency market capitalization of more than $130 billion by August 2017. Initial coin offering (ICO) refers to introduction of new digital currency (token) by garnering financial support from early technology backers and investors to develop a dedicated innovative solution. ICO is an analogue of Initial Public Offering (IPO) with several key differences. Initial coin offering is witnessing rapid growth during the recent times. ICO funding has raised over $320 million till June 2017, 10% more than capital raised through VC funding during the same period. Here we discuss some of the most unique and important features of ICO Funding.
ICOs are Blockchain based tokens
Most of the blockchain startups follow ICO route to raise capital. These blockchain ventures prefer using blockchain based tokens and smart contracts owing to its transparency, immutability, security, and wide acceptance. It allows individuals, as well small and medium scale enterprises to raise project capital without approval from any central authority. Adoption of decentralized blockchain technology minimizes risks, thus enticing investors trust in the ICO funding.
Analogue of Initial Public Offering (IPO)
ICO Funding is very similar to the process of raising capital through Initial Public Offering (IPO). IPO raises capital by issuing securities such as stocks/shares. It also allows trading of these securities on the exchanges, enabling investors reap profits from market uptrends.
ICO funding offers digital tokens to raise capital, preferably in the form of bitcoins (BTC). It also allows investors to trade these tokens on cryptocurrency exchanges and leverage profits from crypto market growth.
An Open market
Anybody with an innovative business idea can use ICO funding to raise project capital. It is considered as the best and instant tool to raise money without much documentation and regulatory hurdles. However, the utility and authenticity of the proposed ICO defines the overall ICO funding success.
Future of fundraising
ICO Funding will be the future of fundraising owing to its varied advantages over conventional fundraising methods. Venture capital fundraising empowers a limited number of stakeholders and delivers huge returns to a selected few. It also provides a small number of investors significant power to dictate the project success.
ICO Funding is gaining popularity due to its decentralized nature of raising capital. The cost of raising funds in ten times cheaper than conventional methods. It enables an ordinary investor to participate in the overall business success. ICO Funding is the most equitable and democratic way of raising funds. This novel way of fundraising has potential to economically uplift the bottom of pyramid.
High financial gains to investors
ICO funding is an exciting phenomenon where most of the successful ICOs have managed to provide huge capital gains within few months. Blockchain startups such as NEM and Monero have manifested over 2,000% returns within months. Most of the ICOs are offered at discounted prices during pre-ICO launch period. High token prices post ICO launch provides instant profit-making opportunities to the investors.
ICO crowdfunding raises funds from ordinary people and shares profit with all those who are involved. It allows project owners use raise significant amounts in very less time. An Ethereum based token Gnosis raised over $12 million in less than 10 minutes. ICO Crowdfunding provides equitable opportunity to each participant to possess share in future profits. ICO tokens can be easily liquidated into bitcoin and Ethereum through popular cryptocurrency exchanges. Emergence of blockchain technology and rapid adoption of cryptocurrencies will revolutionize the concept of crowdfunding.
The ICO funding industry lacks precise regulations, with most of the tokens does not fit into conventional securities definition. Investments in ICO do not fall under any international legal frameworks. ICO Funding is not controlled by any central authority. Absence of Anti-Money Laundering (AML) law or Know Your Customer (KYC) framework is giving rise to incidents of scams, frauds and ponzi schemes. Several governments are working on framing regulations for ICO crowfunding. The U.S. Securities and Exchange Commision (SEC) has recently alerted market participants regarding investing in offer and sale of digital tokens. It has also cautioned organisations involved in ICO fundraising to comply with the existing securities requirements.
Other Challenges to ICO Funding growth
ICO tokens are highly speculative assets. Crypto-market volatility and complex dynamics such as over-capitalization, lack of control, determine the future token performance; hence it is regarded as risky investment. The ICO tokens does not have any inherent value. It does not confer any rights in the investing company. The terms and conditions are wisely drafted and amendable at the discretion of company, providing cushion against investor concerns.