What is an ICO?
In pursuit of easy money, ordinary people, crypto currency holders, speculators and even venture investors, without any guarantees, invest huge amounts of money into the blockchain start-ups.
Within a few days, start-ups accumulate funding equivalent to hundreds of millions of dollars. In return, investors receive tokens, which become the subject of trading on international crypto-exchanges. The process is called an ICO. So what is an ICO?
ICO (initial coin offering) is a form of attracting investments in new technological projects and start-ups. ICO is conducted to finance the project. Project founders attract investments by issuing and selling new crypto-tokens to investors. Although each such crypto currency has a unique name, it is generally called a token.
What is a token?
Token is an analog of traditional shares and bonds. As a rule, tokens are bought for earnings on their resale at a higher price in the future. After the issue, tokens get to the internal or external independent exchange crypto-currency. On exchanges, the cost of tokens grows and decreases, depending on the success of the project, which issued a token, the balance of supply and demand. Also, tokens can perform the functions of the internal payment unit in the project. The owner of the token can pay for certain services of the project.
To release tokens for ICO projects, blockchain technology is used. And the majority of such projects collect funding for the development of solutions, which will also be based on blockchain technology. However, more and more often companies raise funds via ICO for projects, in which blockchain is not used. In the framework of the ICO, non-tech businesses begin to attract funds. Agricultural companies or even projects from the sphere of television and cinema can raise through ICO.
Why everybody talk about ICO?
People are amazed at the speed with which individual projects collect millions via the ICO.
The Gnosis project collected $12.5 million in 11 minutes, selling 4.2% of the released 10 million tokens. Two months later, they began to bargain at $335, and the total cost of the project exceeded $3 billion. The Tezos project received $232 million in two weeks.
The Bancor project, which plans to create a reserve crypto currency, received $153 million for 50% of its tokens in three hours. The Internet of Things IOTA micro-payment platform issued a token and reached a valuation of $1.8 billion. The Status messaging platform collected $102 million.
If in 2016 the volume of the ICO market was estimated at $100 million, then for the first half of 2017 it exceeded $1 billion. Against the backdrop of such a rush the tokens that have just been released grow in price by 100-300 dollars per unit in a few days.
The five best cases of ICO in the first half of 2017 look like this:
- Tezos ($ 232 mln) is a better and “fair” block-platform, built as an alternative to Ethereum.
- Bancor ($ 150 million) – will ensure the exchange of tokens directly among themselves, bypassing the exchange of currency, which will reduce the commission of token holders to zero.
- Status ($ 100 million) is a mobile platform and a web browser for interacting with blockers in the Ethereum network.
- Tenx ($ 83 million) is the release of bank cryptographic cards that will allow you to spend digital money in the real world.
- MobileGo ($ 53 million) – a mobile gaming platform, focused on the reception of crypto-currencies.
What’s next for ICO?
For now, ICO is not regulated by the governments of developed countries. The owners of the tokens do not have the legal rights that the owners of shares (IPOs) receive. However, governments of China and the USA are currently developing regulations mechanisms, and no doubt that other developed countries will follow.
The market is experiencing a “gold rush”, the participants collect huge sums of money on promises and prototypes. Nevertheless, as with the start-up industry that has developed a lot since the initial hype of 2007, correction is inevitable for ICO. More professional players will enter the field, robust frameworks of pre-ICO due-diligence and ICO launch will be introduced, government regulations will implement certain limits. Though definitely a good thing, such developments will to some extend decrease the amount of money one can raise via ICO in comparison to the current “gold rush” than nowadays.
Need help in promoting your upcoming ICO? Contact us today to learn how we can help!