What is an Initial Coin Offering?
An ICO is an “Initial Coin Offering”. This is a revolutionary way for individuals and companies to finance their projects through crowd funding. Specialized cryptocurrency is offered to investors as a “token”. Tokens are basically vouchers that you can exchange for goods or services on a certain platform. Token holders have zero rights, unlike shareholders who have rights to influence management, share of profitability, vote and sue for wrongful acts. A token isn’t meant to represent participation within a company and its management structure, it is a unit of value that an organization creates to self-govern its unique business model and coordinate efforts between the network participants. Tokens have a variety of uses, such as use within the platform’s intended function, being traded for other cryptocurrencies or used in exchange for certain goods and services provided by the original ICO holder. An ICO is advantageous to other forms of fundraising because it allows access to a greater and wider investment pool. For investors, ICOs can bring enormous returns unlike any financial class and early access to a revolutionary product; it is not uncommon for ICOs to list on exchanges at values that are several, sometimes even hundreds, of times their ICO value.
The first Initial Coin Offering was for Mastercoin back in 2013. Its $600,000 in earnings were a massive hit for the time and paved the way for future ICOs, but actually proved to be relatively small in comparison to what ICOs would eventually garner. The next substantial ICO was held by Ethereum, which raised approximately $2.3 million in bitcoin in only 24 hours. Ethereum would become the leading blockchain platform for ICOs, with tokens based on the ERC-20 protocol.
With the rise of bitcoin and cryptocurrency in 2017, ICOs exploded in popularity.
In May 2017, an ICO for a web browser called Brave earned $35 million in just under 30 seconds. A messaging app Kik raised nearly $100 million for their ICO in September. In 2018, EOS raised a staggering $4 billion for its own ICO.
As of now, ICOs in 2018 have raised at least $18.6 billion through over 700 ICOs, and the numbers are still growing.
As of now, ICOs in 2018 have raised at least $18.6 billion through over 700 ICOs, and the numbers are still growing. ICOs allow a team to give investors tokens in exchange for funds needed to further develop the crypto project. In the past, a team would need to pursue venture capitalists or angel investors to raise capital. However, thanks to the ICO model, a project can be funded by tens of thousands of people across the globe, each of whom contribute small amounts of capital.
What is a Blockchain?
The blockchain is the backbone of cryptocurrency technology. It is the digital ledger of all crypto transactions, from the beginning of their creation. These records are distributed across a network of computers that are all working simultaneously to maintain the network. The way these computers approve transactions is designed so that strangers are economically incentivized to comply, cooperate and contribute to the network’s transaction approving process. By incentivizing many unrelated actors to contribute to the network and simultaneously penalizing any malicious activity, the network is ensured to be secure and decentralized (free from a centralized attack). Each transaction is easily accessible, providing information on factors such as time, location, value and parties involved. Each time a transaction is requested it must first be approved by the network. When a transaction is approved, it is lumped with several over transactions seeking approval at the same time. This lump of transaction has become known as a ‘block’. Each block contains the balances of every crypto wallet (for that coin) at that point in time. For the new chunk of time, a new block represents the new wallet balances. This block is linked to the previous block to show the change in value ownership across time. The fact that ‘blocks’ are connected to one another in a string or ‘chain’ is how the term ‘blockchain’ was coined. The computers that support the network ensure the transaction validation and block creation procedure is accurate. To rewrite a transaction at a previous block the entire blockchain must be rewritten – this is essentially impossible. These security features serve to consistently confirm that these links in the chain and values within each block are always accurate.
Profit and Loss
Cryptocurrencies are volatile; we know this. But, if willing to start investing, this volatility presents you with opportunities to make an/or lose a significant amount of money.
There has been over two thousand Initial Coin Offerings (ICOs) launched within the last year, a lot of these companies had either failed to deliver or never actually intended to provide. The market has been saturated with untrustworthy companies, and it has made it extremely hard to find an ICO where you can invest your money.
That is why the team at IOMarketPulse wants to share with you some tips when reviewing ICOs at your leisure when deciding where to invest.
DISCLAIMER: Suggestions have been made in this writing but do not constitute legal or investment advice and should not be taken as such. You must (and should) seek separate professional counsel if trying to invest in an ICO or related activity.
Invest in ICOs based on their product and team: You should start by questioning and ICOs Product and features, what are they presenting as innovative, what are your immediate likes and dislikes?
Don’t be afraid to take a look at the teams behind the ICOs, does this team have a vast amount of experience? Brand new? A group in which you feel that you can trust to continue working on a project and minimize your worry of losing your money.
When ready to place your investment, look for ICOs that are providing Bonus Tokens: It is beginning to be more common for ICOs to have a discount during their launch, where you can purchase a companies coin/token cheaper as an incentive for investors.
Once you have made your investment, it is a common practice to immediately sell 30% to recoup a part of your investment and then hold the remaining 70% for a few months. Don’t be worried, and never invest more than you are willing to lose.
Overall, keep it simple. Do your due diligence by researching the team, the product and their roadmaps. Minimize your chance of losing money by taking the time to make the right investment.
Launching and Legality
As Bitcoin continues to move up and down sporadically, there is one thing that stays on a constant rise, initial coin offerings (ICOs). Since the birth of blockchain technology, companies and start-ups have been launching their project with the ICO business model; the popularity is shown with the sheer number of over two thousand ICO’s have started within just over a year.
Coinciding the popularity of initial coin offerings is a massive amount of speculation that arrived from the general public (those who have none to a limited amount of industry knowledge). This speculation birthed due to certain companies trying to raise funds quickly and urgently while not having a product or timeline to deliver, to innovate, and to progress humans forward another notch or two.
With the failures, as well as successes of past ICOs essential talking points have surfaced that can be looked at and analyzed if anyone would be interested in launching their own ICO:
– ICOs are not meant as a get rich quick scheme
– Not an easy or quick way to raise capital
– Mostly created by smaller companies and start-ups
– Not a lot of regulations
– Lack of urgency
– Code vulnerabilities
– Scams and Hacks
– Potential to develop and innovate a new or existing industry
An Initial Coin Offering will provide a platforms native token in exchange for the cryptocurrency, what the native token represents will vary depending on company and industry. Here are a few different types of native cryptographic tokens (Page 17:https://blockchainreview.io/wp-content/uploads/2017/12/How-to-launch-ICO.pdf):
1. Product Usage: This will require payment to either access or use a system/product.
2.Equity/Right: A startup company would offer a stake in their company and provide certain benefits as a profit-sharing model or voting system.
3. Currency: A transaction unit that will be used as payment between users or network.
4. Work: Contribution in exchange for revenue.
5. Asset Ownership: Tokens that will be backed by a specific asset.
Note: A platforms native token is not subject to only one of these types, more often than not, native tokens are sharing the benefits of a few of these types of cryptographic token models.
Here is a small roadmap of launching an ICO:
1. The concept of the idea or project
2. Assembling of a core team
3. Product planning
4. Getting advisors
5. Product & Community marketing
6. Developing a whitepaper
7. Releasing a roadmap
8. Seeking legal counsel
9. Token sale marketing
10. Releasing Code and Audits
11. Token Sale
12. Proceeds conversion
13. Releasing prototype
14. Transparency reposts and post-sale
There are quite a few steps to take to ensure that your ICO runs with as little friction as possible, but if you are eager to launch and want to focus on the most critical steps, the suggestion is that you have the following set in stone before any public interaction:
– Your team
– Advisory Board
– Whitepaper (Yellow Paper a bonus)
– Your code or prototype
– Token sale Terms
The last piece of the puzzle in launching your initial coin offering is to find the right jurisdiction to run your ICO. Since blockchain technology is still in its infancy, most of its regulations are currently being put in place. Though, launching in one of the leading structures of the world that are open and appreciative of an innovative tech culture will be of benefit because they have specific regulations already put in place.
Some of the leading structures for ICOs (Country):
– Hong Kong
– The British Virgin Islands
– Cayman Islands
– Isle of Man
These countries share a lot of the same structures, but all vary slightly depending on their purpose of wanting to adopt new and innovative technologies. Here are a few legal aspects to keep in mind when determining the jurisdiction of your ICO:
– What is that jurisdictions cooperation with the industry?
– How much access do you have to legal and industry representatives?
– How are the consumer and investors protected?
– Do they have a clear definition of what a cryptocurrency is?
– Are there Industry Advocacy Groups?
– Taxation and Advertising laws
With all of this information in mind, it can be incredibly daunting to jump into the shark tank and start playing ICO roulette. From the rise in popularity to create ICOs there has been a rise in tandem of companies to try and expedite this process for you. If you are ever stuck in launching, always be aware you can reach out to other companies and business to aid you in this process, whether it be for marketing, sourcing your code, etc. You are creating a business, not a quick dollar.
Overall, some suggestions have been made in this writing but do not constitute legal or investment advice and should not be taken as such. You must (and should) seek separate professional counsel if trying to launch an ICO or related activity.
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