If you haven’t heard about Initial Coin Offerings, or ICOs as everyone calls them, then you must have had a break from being on the Internet. They have been around for a few years, but in 2017 this form of raising funds for new startups has really blasted off and although there are questions about them, it seems to me that this is a tide that won’t be pushed back.
Search for information about ICOs and I guarantee that the next time you go on Facebook or read a newspaper or magazine online, you’ll see endless adverts for a whole host of new ICOs. Why are they so popular? The short answer is that an ICO enables a company to raise money fast and without having to pay fees to middlemen.
It isn’t just new businesses that are using ICOs; it is well-established companies, and whilst China may have drawn even more attention to them by banning them, the rest of the world is continuing to support the platform. And, with institutional investors starting to invest in them, this is a strong indicator that this new approach to crowdfunding has a strong future.
How does an ICO work?
How does an ICO work? It is a crowdsale mechanism built on the blockchain open-source technology; the same blockchain that supports Bitcoin and Ethereum as well as other cryptocurrencies. ICO investors buy ‘tokens’ that they pay for with a crypto or fiat currency. The tokens are like shares and investors hope that the values and prices will rise as the project achieves success.
Another way to look at an ICO token sale is this: the token can represent some sort of value or be of value itself, or an ICO might attribute equity to a token. Quite frequently, the token issued in an ICO gives a person access to the features of a particular project. For example, tokens are used to pay for goods and services from the company offering the ICO instead of having cash or Bitcoin. You could say that these tokens are similar to a store’s loyalty points. So, there are a number of ways that an can ICO operate, and this is another part of their appeal for both the businesses starting an ICO and investors.
More confidence in the blockchain
A number of startups, some with a well-known name behind them like that of Paris Hilton, have raised millions in minutes, showing that the public’s appetite for this form of investment is very strong. This is largely because Bitcoin and Ethereum have had excellent results during the last year and more people have confidence in cryptocurrencies. It is also due to the fact that there is greater understanding of the blockchain and why a decentralised platform works for the benefit of the average person who is often cut out of the investment world by bigger corporate entities. And, there is trust in the blockchain as people become more aware of its security mechanisms.
ICOs in 2017
Currently, an average of about 20 ICOs hit the market every month. According to Autonomous NEXT, more than $1.2 billion in cryptocurrency was raised through ICOs in the first half of 2017, which is well above $300 million made in the previous years.
The advantages of ICOs
There will probably be much discussion in the coming months about ways in which ICOs might change in the future, but they will certainly be a part of it thanks to their inherent advantages, such as: they provide efficient and low cost funding to startups and are accessible to any participant in any geographical location. They also provide an opportunity for investment in a new and disruptive technology and for financial gains based on the future potential of blockchain. We are witnessing another new step in the revolutionary power of the crowd and ICOs are one of its most powerful tools for change.