Initial coin offering (ICO) is equivalent to initial public offering (IPO) from the world of cryptocurrency. ICOs are conducted
by blockchain startups – fund raising is announced at the early stage, and then investors receive a share of the new cryptocurrency
in proportion to their respective investments. After the ICO, investors will earn if the price of that cryptocurrency rises.
And the price rises if the startup succeeds in business or if it earns from speculation on the exchange.
Why conduct an ICO and why is it popular?
The purpose of any ICO is to raise funds for a project. Investors are attracted by any opportunity to enrich themselves.
In the first half of 2017 alone, ICOs organized by startups around the world raised $180 million, which is 80% more than
for the entire 2016. Obviously, this upward trend will continue, and for now there are no signs it will stop or fall.
The boom around ICO and cryptocurrencies is very similar to the IPO boom of Internet projects in the late 90’s. Many projects
that conduct ICOs just try to make money on the emerging excitement, but there are startups, nobly using the new tool to
develop a variety of markets and technologies.
Philosophically speaking, the cryptocurrency boom is driven by the idea of information and financial anarchism that is soaring
in the air and captivating the youth. This reminds us of the popularity of 3D-printed guns!
Economically speaking, the popularity of ICO is very simple: it is an opportunity for any interesting project to attract
huge amounts of money, at the same time bypassing greedy corporations and business funds. For ordinary people, it is a
chance to earn real money from investment, bypassing exchange brokers, licenses and the taxation system.
Comparing ICO, IPO and crowdfunding
A common feature of ICO, IPO and crowdfunding is the goal. All these three events are aimed at attracting investment for
a project.
The main difference between an ICO and crowdfunding is that for you to successfully raise funds in crowdfunding on sites
like Kickstarter, you will need either already produced goods or a prototype. But with an ICO, you can attract investment
at the earliest, embryonic stage of a project.
Despite this, ICO can be considered a variety of crowdfunding, but instead of having a physical product (in fact pre-order
of goods), participants are offered to receive (to invest in) a new cryptocurrency. Participants invest money in a project,
hoping to make some dividends from it in the future: most often in the form of an opportunity to sell coins at an increased
price.
For the tokens of the project storj.io, you can buy disk space on the service, tokens can also be earned by leasing a part of your hard drive.
The main difference between ICO and the traditional IPO is that ICO has no government regulation. This provides a boom, since
any high schooler can launch his or her own ICO, but also retain major investors. After all, absence of regulatory legislation
in the field of ICO makes such investments based purely on trust and enthusiasm, which is often not suitable for major
transactions.
But there are exceptions. During the initial offering of the Brave web browser, one investor alone acquired the equivalent
of 20,000 ETH, which was $4.7 million then.
Investors pursue one of the following three goals or even more than one at once:
- To support their favorite startup;
- To get the product at a low price;
- To earn on speculation with tokens on the exchange in the future.
ICO differs from IPO also in the fact that buying tokens at the initial offering does not give investors a share in the company.
Therefore, ICO still looks more like a crowdfunding than an IPO model.
Examples of successful ICOs
An ICO can be considered successful if it is able to raise financing, and investors succeed when the value of tokens further
increases. Therefore, large ICOs are successful from the point of view of startups, while the profitable ones, for which
the token value grows on the exchange, are successful for investors. But one does not contradict or interfere with the
other.
Most profitable ICOs
- Stratis.
In June 2016, this blockchain platform raised almost $600,000 in funds, selling 84 million tokens to ICO investors at a starting
price of $0.007. After the project was launched, the price of 1 token reached $10, and as of July 2017, it was selling
at $5, recording a 67410% growth. - Ethereum.
It is an example of not only one of the most lucrative but at the same time one of the largest ICOs. The blockchain platform
raised over $15.5 million in 2014, selling 50 million tokens at a price of $0.311. As of July 2017, one token was selling
at $202. Growth was 64980%. - IOTA.
The project is an exchange network for the Internet of things and closes the top three. A distinctive feature of IOTA is
that there are no commissions for micropayments. Since its offering, the price of tokens has increased by 64480%.
The most profitable ICO according to icostats.com
Largest ICOs
- Brave web browser.
The project was created by Mozilla co-founder Brendan Eich and raised $35 million from its ICO in just 24 seconds. For a
week, the return on investment from ICO for investors after the sale of tokens on the exchange was almost 700%. - Aragon.
The startup develops a platform for managing blockchain-based business processes. In May 2017, the startup sucked in the
targeted $25 million in just 15 minutes.
Upcoming ICOs
There are thematic sites on the network that track upcoming ICOs. They help to achieve better results and attract the attention
of investors and the public.
The site icoalert.com shows upcoming ICOs in a convenient manner.
Conclusions and practical tips
The cryptocurrency market is on the rise and ICO’s are constantly setting new records. This new financial tool enables young
projects to start and investors to earn. But ICO investments carry some risk for investors.
Your project will inspire confidence and attract investors’ attention if:
- The required funding amount is clearly stated.
- Direct cryptocurrency mining is possible.
- A test version of the product is implemented.
- There is a clear development plan for the startup after receiving investment.
- There is a set of expert estimates for the project.
- The identity of the organizers is known.
- The need for ICO and the launching of a new cryptocurrency is well-reasoned.
Owing to the nature of a particular project, some of the requirements listed above can of course be ignored, but most often
they are mandatory. There are several cases of major ICO scam. This severely undermines investor confidence in each new
project. So it is always important to prove that the project is a reliable one.
