The Good & The Bad Of ICOs

An Initial Coin Offering (ICO) is an unregulated means of crowdfunding using cryptocurrency, which is applied by cryptocurrency businesses as an alternative to the rigorous and regulated capital-raising process required by venture capitalists, banks, or stock exchanges. These function by selling off a created digital token which is somehow tied into the company, product, or service. The first token sale ICO was held by Mastercoin in July 2013. ICOs and token sales are now extremely popular. As of May 2017 there were around 20 offerings, and at least 18 websites that tracked ICOs. By the end of August 2017, ICO coin sales worth $1.8 billion had been conducted, more than ten times as much as in all of 2016. The majority of ICO investors are enthusiasts, rather than people with expertise.

Positives And Negatives Of ICOs

ICOs are open to the general public; therefore, anyone in the cryptocurrency industry can partake if they can get funds transferred on time. This means the projects can raise funds from investors all over the world in a completely decentralized manner. Moreover, the concept of a cryptocurrency ICO means that people can help shape the future of the entire ecosystem. There is a wide range of different projects and new ideas raising funds through ICOs, which raise a lot of money doing so.

However, with ICOs, investors are often buying coins or tokens for a project that does not even fully exist yet. In most cases, the team will have some degree of code to show what the project will look like. However, there is no guarantee of projects ever being completed, or even being embraced by mainstream users if they are. This is a risk investors should consider, as it may take years until there is an actual market for the project in question, or even for a project with a potential market to go mainstream (which isn’t guaranteed to happen)… and that’s if it ever gets off the ground to begin with. Backers have a financial stake in the process, but ICOs are not regulated or registered. This means that users will not be reimbursed if something were to go wrong.

Although there are successful ICO transactions on record and ICOs are poised to be disruptive innovative tools in the digital era, investors are cautioned to be wary as some ICO or crowdsale campaigns are actually fraudulent, in addition to those which simply aren’t prepared to create a functioning company, product, or service, and get it out to their market, which is also in addition to those which just don’t have a good market to begin with. Because these fund-raising operatives are not regulated by financial authorities such as the Securities Exchange Commission, funds that are lost due to fraudulent initiatives or unprepared/inexperienced teams may never be recovered.

A Few Initial Coin Offerings

Nxt ICO

Nxt is a complete economic system platform that allows users to issue assets and cryptocurrencies that can be exchanged in a decentralized manner through the Nxt exchange. Users can also add plugins and access the Nxt Platform through APIs. The NXT ICO started on the 28th of September, 2013 and it lasted until the 18th of November, 2013, with 21 bitcoins collected, worth roughly $14,000. The ICO was held unofficially through an anonymous Bitcoin Talk forum account, with funds being sent to the individual’s personal Bitcoin address with a special message attached. The genesis block revealed that only 73 people participated in the ICO which made for a poor distribution, one of the biggest setbacks for early adoption. 1,000,000,000 NXT tokens were distributed.

Ethereum ICO

Ethereum‘s native value token, Ether, is mined through a Proof-of-Work protocol that is set to change to Proof-of-Stake. The Ethereum ICO was held from the 20th of July, 2014 to the 2nd of September, 2014 with 31.5k BTC ($18.4 million at the time). 60,000,000 tokens were distributed, making it the second most successful ICO held and the 6th highest funded crowdfunding project. The fact that the development team held the funds in BTC led to it losing a big portion of its funding due to volatility. Several projects have been and are being built on the Ethereum Virtual Machine, like DigixDAO, Ardor, Singular-DTV, and Iconomi, among many others.

Lisk ICO

Lisk is a modular Smart Contract and Dapp platform that aims to make their deployment accessible to all developers by allowing them to be coded in Javascript. The Lisk cryptocurrency uses a Delegated Proof-of-Stake consensus mechanism. The Lisk ICO was held from the 22nd of February until the 21st of March, 2016. During this period users were allowed to send Bitcoin and any other cryptocurrency supported by the ShapeShift automatic exchange. The team behind Lisk is Max Kordek and Olivier Beddows.  Over $5,700,000 was gathered with 85,000,000 LSK tokens distributed.

The DAO

The DAO is a smart contract system built on Ethereum, which is meant to function as a community managed venture fund. The DAO was the most successful crowdfunding project ever held between May 28th, 2016 and June 25th, 2016 with $160,000,000 capital raised. During this period users were allowed to purchase newly created DAO tokens with Ether (ETH). During the first 15 days, the conversion rate for DAO tokens to ETH was 100 to 1, and it rose gradually by 0.05 ETH per day until it reached the 100 to 1.5 scale. 1,153,816,598.7 DAO tokens were distributed. Since The DAO had no owner, no one was in control of the funds meaning that during the ICO, users sent Ether to a smart contract address that would, in turn, create DAO tokens and send them to the address from which the Ether came from. The DAO was hacked, and the project came to an end after a hard-fork was executed to retrieve the stolen funds.

Waves ICO

The Waves Platform is a custom token and asset platform focused on business applications with features like custom token and asset issuance and exchange, fiat gateways, and crowdfunding tools. The Waves ICO started on the 12th of April and lasted until the 31st of May. During the first day, users received a 20% bonus. The Waves ICO was successful with 29,636 BTC and 460 BTC in NXT asset swaps being exchanged for Waves. The token has been trading under ICO value since the beginning of its release on exchanges, which can also be attributed to delays in the Roadmap. The Waves team consists of Sasha Ivanov and Tobias Schwarz. $16,436,095 capital was raised with 85,000,000 WAVES tokens distributed.

Stratis ICO

Stratis is a Blockchain-as-a-Service (BaaS) platform that allows corporations to create their own custom private or public sidechains for their business needs. Stratis allows users to combine various features from other blockchains and to test various variations of blockchain specifications and features. The Stratis ICO took place from the 21st of July to the 26th, and it gathered $598,684.5, a relatively small amount compared to other ICOs. The total number of 84,000,000 STRAT tokens was distributed. Users received a 20% bonus during the first five days, which was then reduced to 10% for the next ten days, and then 5% for the next ten days.

The hype around ICOs is real and growing. However, ICOs can either do well or very easily flop and do nothing. It’s a good idea to get an advisor if you’re not already a seasoned professional investor. It’s also a good idea to have an ICO advisor if you’re planning to launch your own ICO. Remember not to invest more than what you can afford to lose and to research the technology and team behind the project.

NOTE: We are not financial advisors and should not be taken as such.


Resources

https://www.coindesk.com/mastercoin-foundation-virtual-currencies-bitcoin-protocol/
https://themerkle.com/decentralized-organization-vs-decentralized-autonomous-organization/
https://www.cryptocompare.com/coins/nxt/
https://blockgeeks.com/guides/what-is-ethereum/
https://lisk.io/
http://uk.businessinsider.com/24-year-old-raises-66-million-for-bitcoin-app-store-2016-5?IR=T
https://forum.daohub.org/
https://www.forbes.com/sites/francescoppola/2016/06/20/the-dao-hacking-shows-that-coders-are-not-infallible/#2b802c5b3983
https://www.cryptocompare.com/coins/waves
https://www.cryptocoinsnews.com/stratis-offers-blockchain-as-a-service-to-its-users/