So, what is an ICO?
An ICO, or Initial Coin Offering, is a means by which start-ups can generate income through the sale of a new, unique cryptocurrency for either fiat, accepted legal tender, or existing cryptocurrency such as Bitcoin or Ether. The latter is the norm, and works as a quick way for new coins to be distributed. A simple ICO definition from Investopedia is “an unregulated means by which funds are raised for a new cryptocurrency venture”.
Similar to an Initial Public Offering, or IPO in some ways, an Initial Coin Offering is done to raise funds for the company initiating the ICO. The difference however is that unlike with an IPO, the investor does not receive shares in the company but instead an asset or coin token. Purchasing tokens through an ICO does not generally entitle the investor to any rights within the company, nor any share of its profits, although there are options for the ICO to imbue their tokens with equity or the chance to offer input on the product.
ICO are far less regulated than other means of generating income, which often means that start-ups can get businesses off the ground faster and don’t need to go through the time-consuming process of raising capital through either venture capitalists or banks. They are also not giving away any shares of the company.
How ICO crowdfunding works
ICO’s share similarities with existing crowdfunding opportunities, such as Kickstarter or Rocket Hub, however early adopters are incentivised to spread awareness in the hope that this will increase the value of their asset. This allows the ICO to build a network of supporters who gain personally from the increased visibility of the project and from a successful launch. For the reason, ICO’s are sometimes called crowdsales.
To get started with an ICO, a company will usually create a whitepaper which states the following:
- The key features of the project
- What problem the project will solve once it has come to fruition
- Required revenue
- Which currency is accepted, virtual or otherwise
- How long the campaign will run for
- How many of the coins will be retained by the project creators
The project creators will then select the method with which to receive the income in exchange for their tokens, either through conventional means or a blockchain-based system. The blockchain is a public ledger where all cryptocurrency transactions are logged; in essence, it is a database representing account balances which is stored across multiple machines and accessible via the internet. Often, each stage of the Initial Coin Offering has a different pricing structure, so that you will get a better price the earlier you invest.
To launch an ICO, Ethereum is the most popular platform mainly due to its clever use of smart contracts. A smart contract is a self-executing contact that allows for agreements to be put into place without needing a third party involved. These contracts not only underline the rules of an agreement, but actually enforce them too. Ethereum is also popular as it makes for the easiest token storage and you can store any tokens in the ether wallet.
Ethereum is not just the most popular platform, it is also itself an example of a successful initial coin distribution. The value of Ethers increased exponentially, providing the early investors a chance to profit hugely on their purchase.
|ICO start time: 01:00 18/10/2017||ICO end time: 00:00 19/12/2017||Duration: 2 months|
|Token platform: Ethereum||Payment method: ETH||Start price: ETH 0.01|
MiniApps is a new artificial intelligence chatbot platform, powered by blockchain technology. Users will be able to easily construct chatbots / miniapps using simple building blocks as templates. This brings creating bots to the masses rather than just the technology minded people.
The ICO represents 50% of the total token supply, with the other 50% split between team members, partners, community grants and the bounty campaign.
|ICO start time: 16:00 03/11/2017||ICO end time: 16:00 17/11/2017||Duration: 2 weeks|
|Token platform: Ethereum||Payment method: ETH/BTC||Start price: ETH 0.00133|
DMarket has been built to help gamers trade virtual items. Currently only 6% of gamers are actively making a profit by trading virtual assets. DMarket wants to educate gamers that this is possible.
By using a decentralised platform based on blockchain technology, it plans to make the exchange of a virtual item very quick and easy. With no third party involved, all revenue will go to developers and all the ownership rights of the item will go to the buyer.
This is aimed to unlock a glabal economy by connecting more than 2.3 billion gamers to the blockchain platform.
|ICO start time: 00:00 15/11/2017||ICO end time: N/A||Duration: N/A|
|Token platform: Ethereum||Payment method: ETH||Start price: N/A|
FoodCoin is an innovative idea to develop a network of businesses that buy and sell food on a regular basis. This would range from the farmers to the michelin star chefs and everything in the middle.
The idea is an ecosystem that is based on blockchain technology. This would be a decentralised market whereby anyone could exchange goods with anyone else. With no middle man, costs will be reduced and using blockchain technology, every transaction will be recorded on a public ledger. It will be based on the Ethereum platform and use Ether as its currency for exchange.
|ICO start time: 03:00 18/11/2017||ICO end time: 00:00 18/01/2018||Duration: 2 months|
|Token platform: Ethereum||Payment method: ETH||Start price: N/A|
ACT wants to make large institutions, such as governments, accountable for their actions. They have proposed a blockchain that will empower citizens to own, plan and execute resources to address global challenges.
NGOs, for all their good will, are still dominated by influential people at the top who control the workings of the organisation. Using blockchain technology, ACT will attempt to break down this type of system, giving more power to the many, not the few. Instant and transparent transactions will cut out the middle man and make everything visible so the network knows exactly what is going where.
|ICO start time: 00:00 19/11/2017||ICO end time: 00:00 03/12/2017||Duration: 2 weeks|
|Token platform: Ethereum||Payment method: ETH||Start price: USD 0.08|
ARNA Panacea has developed a decentralised technology to reliably analyse and store clinical data. Powered by ARNA tokens, it stores data on a public blockchain.
It is used to help patients suffering from cancer. Users will be able to identify those who are fighting cancer and need funds to be treated. This kind of technology means there are no centralised institutions, so the large pharma companies would have less power in the development of innovative technologies. All funds raised in the ICO will be kept on the blockchain, resulting in full transparency of transactions.
Pros and Cons
ICOs offer a unique business opportunity for those interested in investing in something new. But is an ICO right for you? Below we uncover some of the pros and cons of ICOs for both potential ICO start-ups and the investors thinking about purchasing any new cryptocurrency.
- New Opportunities: Initial Coin Offerings give new and upcoming projects a platform with which to share their ideas with an international network of interested parties. Different from the more traditional routes of capital funding, this may mean that more innovative ideas get off the ground.
- Exposure: Not only does an ICO offer revenue for a new business, it also offers exposure to a tailored audience who are invested in the success of your product.
- Ease: All you need for a successful ICO launch is a detailed, convincing whitepaper. It’s an unfortunate truth that the rigorous capital-funding process needed to get a start-up running can ruin the chances of it being executed. The paperwork and time spent can be too much of an investment for the project developers meaning that good ideas never see the light of day.
- Community: Beginning your business with an Initial Coin Offering means that you have a ready-made community for your project which increases the chances of your products reaching success in the market. It also gives you a sounding board of engaged advocates who want to see your product succeed!
- Rewards for early investment: In conventional capital fund-raising, investors often see there share diluted as projects go through multiple rounds of funding. In an ICO however, the early adopters of the coin are the ones who stand to see the biggest rewards.
- Speculation: Investing in an ICO means buying into an idea of a project or product. There are no guarantees that the project outlined in the whitepaper will come to fruition or be a success even if it does!
- Unfair playing field: As with all investment opportunities, there are big players in the bitcoin community who have the means and resources to sway the outcome of an Initial Coin Offering. These people or institutions, often referred to as Whales, will often pay incredibly high transaction fees to ensure they get the coins they want before the general retail market.
- Scams: Due to the ease of setting up an ICO as mentioned above, it is possible for unscrupulous characters to create fake whitepapers which are enough to convince investors of their legitimacy and buy into an ICO even though there is no intention to take the project full-term. The lack of regulation also means it possible to leave out key parts of the project plan when drafting the whitepaper.
- Blockchain strain: If an ICO is executed properly, it should create a lot of hype which is great news for the developers behind the cryptocurrency but can lead to additional pressure on the blockchain and even cause potential investors to see their transaction fail.
- Government intervention: Currently many ICO’s remain unregulated which gives it a lot of advantages over standard means of raising capital funding, however it is likely that governments may start looking at ways to regulate them due to the large sums of money passing through, and the huge scams which have occurred since the first ICO launched. This would spell trouble for all cryptocurrency as the original purpose of blockchain technology was to create a currency that was decentralised and unregulated.
Laws and regulations
So now you know some of the positive and negative aspects of ICOs, your next step is working out how to protect yourself if you want to invest in an ICO.
There are multiple ways to check that your potential investment is a worthwhile and viable one, and it is important to familiarise yourself with the laws and regulations currently in place to ensure the company you are buying from is both conscientious and genuine. This is done most easily when the company you are researching are offering a level of transparency in all that they are doing.
For any readers from the U.S., it is worth noting that the Securities and Exchange Commission - after an investigation into The DAO - ruled in July 2017 that some Initial Coin Offerings are involved in the sale of securities and stressed that those who offer and sell securities in the U.S. are required to comply with federal securities laws, regardless of whether those securities are purchased with cryptocurrency or distributed with blockchain technology.
With the above in mind, it is important to do individual research and seek advice on the region where your project is based. For example, ICOs are illegal in China and have been banned by the People’s Bank of China due to what they define as a disruption to “economic and financial stability”.
It is also important to keep a good record of all activity for tax purposes to ensure that you are complying with all business law in your region. Cryptocurrency can be considered either a currency, commodity or property, or even all of the above and you need to be aware of how it is defined in your region.
Finally, you must think carefully about the terminology chosen by the company looking to distribute new cryptocurrency. Ethereum, for example, is often considered one of the most successful ICO’s however they are careful to never use the term ICO due to its likeness to the term IPO. By calling their initial coin distribution a ‘token crowdsale’, they avoided any confusion that might arise over whether investors are purchasing stocks of shares. It is vital to know exactly what your token offers, and whether it would be defined as an asset or security which changes both the investors position and the way it is regulated. Some ICOs have intentionally attached additional value to their tokens so that they act as securities.
Should I take the plunge?
Ok, so now you understand what an Initial Coin Offering is, and you have an idea of the pros and cons of investing in one, it’s time to decide whether it is right for you.
It is undeniable that ICO’s are growing in the public consciousness and huge amounts of money are moving hands, with companies raising millions of dollars and new investors making serious amounts of cash off the back of this. Whether this is the beginning of a brave new world of funding, or a bubble as some experts have predicted, there is certainly still money to be made with ICOs in the near future as long as you take your time and do your research properly.
There are a few key things you need to know about any ICO before taking that first step:
- The Product: what is the unique selling point of the product? Why will people want to buy this product when it launches? Does it fill a gap in the market?
- The Company: who is behind the product? Are they trustworthy? Do they have any previous experience in the market? Is there an ICO code of practise available?
- The Technology: Is the technology up-to-date and secure? How does the code look? If you do have enough experience with coding, find out from someone who does.
- Potential volatility: How are new coins performing in the market? Is there space for the product to allow for good return on investment(ROI)?
- Business Plan: does their whitepaper include a full and realistic timeline of events for the developers to stick to? Is their plan tenable?
- Terms and Conditions: Are the T&Cs clear? Does the offer include scam protection and sit within a legally defined framework? For the ICO, data protection should also be important.
- Contracts: Are they using smart contracts and if so, how do they look from a security perspective? Are they clear instructions on how to invest?
The underlying point to take from the above is that as long as the company launching their tokens is offering transparency in everything they do, and their plans look realistic, innovative and solve a problem then you could be on to something great! Always do the same research you would for any investment opportunity, but remember that you are buying a product with potential resale value as opposed to equity. This means you can get out whenever you want – hopefully with a great return.
For the latest ICO information or ICO news, websites such as cryptocoinsnews.com or coindesk.com update regularly. To look for upcoming opportunities, ICO website coinlist.com or coinschedule.com list current and upcoming ICOs, and for ICO rating you can go to ICOrating.com where companies with a planned ICO are evaluated.