ICO – is an initial coin offering, an unregulated crowdfunding tool using cryptocurrencies, which can be a source of funding for startups.
- 1 The ICO mechanism
- 2 How ICO is different from IPO
- 3 Popular platforms for ICO
- 4 Juridical aspects
- 5 The market
- 6 Profitability and risks of participation in ICO
- 7 The capital
- 8 What attention should be paid to when choosing ICO
- 9 Where to search the information about ICO
- 10 pre-ICO
- 11 ICO marketing
- 12 See also
- 13 References
The ICO mechanism
When a developer of cryptocurrency wants to raise funds through the ICO, it publishes a detailed actions plan (the so-called Whitepaper). This plan describes what kind of project it is, what needs it solves, how much money you need to start it up, how much its own cryptocurrency (tokens) will be issued, what share of it will be sold, ICO campaign terms and other technical details.
Funds are raised on special platforms using the blockchain technology. Therefore, all transactions are protected by cryptography and are anonymous.
If the required amount can not be raised within the prescribed period, ICO is recognized as failed, and all money is returned to investors. If the campaign is successful, this money is used to finance the project.
How ICO is different from IPO
IPO is a very complicated procedure that requires a lot of resources. It may take up to one year to prepare shares, besides, not everyone can buy securities. This is acceptable for the large companies, but it closes the IPO channel for start-ups, which do not yet have the required resources.
Unlike the initial public offering (IPO), where investors acquire shares in the company's ownership, in the case of ICO anyone can buy startup tokens, which in the future can increase their value if the business is successful. In some schemes, the company's services can be paid with its tokens. However, tokens do not give right of property.
Popular platforms for ICO
The ICO has not had a legal definition yet, neither the legal status of the organizers and participants in the sale of tokens, nor the requirements for its holding have been defined. In some jurisdictions, local regulations, which try to give their interpretation of cryptocurrencies and to incorporate them into the existing legislation, are adopted.
For example, in Japan, cryptocurrencies are defined as a means of payment, in Switzerland - as tangible fixed assets, in England - as a private currency, in China - as a non-monetary currency, property. In the US, tokens can be recognized as securities.
At the same time, the organizers and participants of ICO do not carry any real legal responsibility, and all procedures are regulated by the crypto community itself. Violation of some adopted rules does not bear any consequences. It is still an unregulated market, which is very risky.
The first sale of tokens was conducted by Mastercoin's crypto-currency project in July 2013, which managed to raise about $500 thousand.
In 2014, the ICO market was able to raise only $ 26 million, and in 2015 this figure fell to $ 14 million. But in 2016, it was possible to raise $ 222 million using ICO. In the spring of 2017, the new Brave web browser, in the course of ICO raised about $ 35 million in 30 seconds via ICO on the Ethereum platform.
By the beginning of October from the beginning of 2017, at least 400 ICOs at the amount of $ 2.3 billion were conducted. At least 20 projects seeking financing in this way appear every month.
Profitability and risks of participation in ICO
Despite the fact that more than 90% of ICO is burned out and does not bring their investors any income, positive examples continue to attract people.
Due to market volatility, the leaders of the list of the most profitable ICO periodically change. At the time of writing this text in October 2017, the first place is taken by the Nxt network distributed cryptographic platform with the profitability of + 403196% since the ICO in September 2013.
The first Chinese crypto currency NEO (+ 107731%) closes the top three.
The popularity of the ICO and the opportunity to get an impressive return on investment have led to the fact that scammers have started using them. According to upbeat assessments, the share of fraudulent or simply failed projects accounts for 80-90% of all conducted ICO.
At the same time, there is no official regulation of these mechanisms yet, and it is impossible to return the money lost.
Therefore, those who want to make investments in blockchain start-ups should carefully study their descriptions and really assess the feasibility and prospects of projects.
The Analysis of DeCenter, the information portal about the blockchain shows that in the largest ICO the lion's share of tokens is bought by about 10 investors, who invest several million dollars into the project at the same time (the withdrawal is made at the purse addresses). Given that wallets are anonymous, and one user can have several ones, it is fair to assume that the oligopoly is even more powerful.
Among such "whales" of the market there are pioneers who entered the bitcoin at the dawn of cryptocurrencies and have become very rich, miners who here and now are mining the cryptocurrency, and large institutional investors and venture funds that have financial resources.
What attention should be paid to when choosing ICO
The traditional instruments of assessment of the profitability of companies in the case of ICO do not work, since there is no project as such, and it will not be possible to evaluate its success, the dynamics of value and other economic parameters.
To protect yourself from investing in a deliberately non-working project or scammers, experts advise paying attention to several parameters.
1. Market. It should have a great potential and at the same time be sufficiently developed or unique. At the same time, the project can occupy a noticeable share of it.
2. The product. Objectively, it is difficult to assess ideas. Therefore, we will have to trust our experience here, answering the questions: "Does the product solve the actual market problem?", "Is the technical part of the project in Whitepaper described correctly and fully," "What feedback about the product does the blockchain community give?" and so on.
4. The team and its current achievements. The team should have people with experience, expertise and reputation in the community. The current activity is also important: participation in conferences, publication of the product and so on.
5. Road map. The team must understand what its purpose is and what specific steps lead to it. A good roadmap contains a detailed description of the stages of project development with financial justification.
6. The conditions of ICO. Mechanism, terms, warranties and other factors.
Where to search the information about ICO
Information about all current ICO is published on thematic resources.
- http://icorating.com/ — is the site of the rating agency that publishes independent analytical studies on companies planning ICO.
- https://foxico.io/ — positions itself as the most complete source of projects emerging on the ICO, with comments from experts and investors.
- https://icotracker.net/ — the popular ICO rating, although its creators emphasize that the rating system is at the development stage, and all rating decisions are subjective in nature.
- https://tokenmarket.net/ico-calendar — is a curator calendar of sales of tokens issued on the TokenMarket platform.
Pre-ICO is necessary for start-ups that have no anchor investor or funding to launch ICO (paid advertisement, meetings organization, technical support etc.). In addition, Pre-ICO allows working with all the mechanisms of ICO with fewer risks and predicting a potential interest in the start-up already after the beginning of the full-scale crowd-funding campaign.