What’s an Initial Coin Offering
- An Initial Coin Offering or ICO or token sale is a crowdsale system which blockchain startups use to fund their projects.
- An investor is offered a digital token in exchange for his investment usually more liquid cryptocurrencies like Bitcoin or Ethereum.
- The investor can trade their tokens at the end of the ICO on a cryptocurrency exchange instead of waiting years.
- Banks and financial institutions decline funding applications by tech start up companies because they are considered high risk.
Why are businesses opting to run Initial Coin Offerings?
The advantages of ICOs:
- Running a token sale is a way, and in most cases, the only way for blockchain startups to raise enough the capital to get started.
- This is also the fastest way to raise large sums of money.
The higher the capital raised during the ICO, the more likely the project will make it to the market.
Why not go to banks instead?
Firstly, startups struggle to get funding from traditional sources because the decision makers simply do not understand the technology.
And secondly, banks and financial Institutions invest only in what they can measure. Tech is a highly competitive industry as well as a high risk.
ICOs are solving this problem for these startups.
Why are there so many of them?
Though Crowdfunding has been around for decades, it is the internet which had actually brought crowdfunding to the world.
Thanks to platforms such as Gofundme.com, Indiegogo.com or even Kickstarter.com, smaller investors can support their favorite projects.
Because initial coin offerings are peer-to-peer, investors from all over the world can participate in an Initial Coin Offering without an intermediary.
The soar in Bitcoin and other cryptocurrency prices in 2017 was also played a big part in the hype.
The blockchain start ups are instantly getting access to millions of investors worldwide in a short period of time when it was previously impossible.
Why does regulation even matter?
The Wild Wild West
ICOs are raising billions of dollars from around the world and everyone wants a piece of the pie.
However, without regulations, the companies can do whatever they want with the funds.
Many start ups have disappeared overnight with millions of dollars after the ICOs leaving investors hanging.
Many dishonest people, also are taking advantage of the lack of regulations to launder money.
Let’s get technical:
So if an investor is offered a token in exchange for his or her investment to raise capital, it becomes a share –
Therefore shouldn’t they have the same rights of shareholders of public companies?
Is it a currency or a security?
The decentralized nature of the tokens make it even more difficult to control.
Blockchain technology gives these tokens more functionality that traditional stocks because you can transfer these digital assets directly to anyone around the world without going through a financial institution which is currently impossible in the current system.
Unfortunately, ICO’s are currently associated to scams due to all the people disappeared.
Even legimate projects are treated as scams.
The cryptocurrency market is very new and the same goes for the projects, the fouders