On Friday, Jun. 10th, 2016, Bitcoin closed–when we say the closing price for Bitcoin, we mean the price of it on 0:00 UTC since Bitcoin trades 24 hours non-stop–the trading at $579.13. Approximately a year later, Bitcoin prices blasted up to $2,900s, about quintuple increase, an unprecedented return for a such an unregulated and unpredictable cryptocurrency. The reason for such an increase in Bitcoin price can be debated, but it surely means the increased the popularity of the blockchain-based cryptocurrencies, and now we even have a new way to fundraise the project that needs capital, and it is called Initial Coin Offering (ICO).
So, what is Initial Coin Offering?
Similar to IPO or crowdfunding like Kickstarter, ICO is a way for the blockchain company to raise money to fund the project. However, instead of selling shares of the company on the public market like IPO or tangible rewards and/or experience like Kickstarter, ICO sells a certain number of crypto-tokens that can only be bought with Bitcoin. According to Investopedia, during an ICO, the company will:
create a plan on a whitepaper which states what the project is about, what need(s) the project will fulfill upon completion, how much money is needed to undertake the venture … If the fund’s requirements are met within the specified timeframe, the money raised is used to either initiate the new scheme or to complete it.
Although it rhymes with IPO, buying an ICO coin does not confer the ownership right to the company. Rather, tokens will act as licenses that give people the ability to use a particular application or participate in a particular network. Investors will buy ICO coins on a rationale that someday when the platform or the project is done, the prices of coins will substantially increase. For example, the company called Storj.io raised $500,000 by selling Storjcoins to create a blockchain-based, end-to-end encrypted, decentralized cloud storage service. Now the service up and running, ICO participants can either use the company’s service with Storjcoin or just trade it like other coins or stock. Given that each coin has its unique ticker symbol–for instance, for Storjcoin, it is SJCX–, it surely acts like one. As you can see from the chart below, if you bought Storjcoin at their ICO and sold it today, you would have realized about %10,000 gain.
From Mastercoin to Bancor: Examples of Initial Coin Offering
First ever Initial Coin Offering was done by the company named Mastercoin. Now called Omni, the company proposed that existing bitcoin protocol “can be used as a protocol layer, on top of which new currency layers with new rules can be built without changing the foundation,” and over the course of the fundraising, raised bitcoins worth $500,000 at the time. Although the price of the coin plunged at one point, Omni has revived its price this May.
The largest and one of the most recent Initial Coin Offering is done by the company called Bancor, a company that promises to “enable built-in price discovery and a liquidity mechanism for tokens on smart contract blockchains,” and raised a total of $152.3 million in under 3 hours. The company is planning on using the raised capital to fund software development, marketing and business development, and more. Other notable examples of ICOs are Brave, a web browser start-up, which raised $35 million in 30 seconds, Gnosis, an ethereum-based prediction market platform, which raised $12.5 million, and of course, the Ethereum, which raised over $18 million.
So what now?
The world of Initial Coin Offering is, as much as it looks like a goldmine and exciting, dangerous and unregulated place with many scammers and speculators. If you would really like to participate in one of the ICOs, you should try your best to avoid scammers and invest in a legitimate fundraising. Of course, it is not an easy process, but according to Cointelegraph article, few simple things you should do are:
- Find if the developers are legitimate and have a reputation in the industry
- No escrow wallet for contributions
- Unrealistic/Unclear goals
- Lack of transparency
Now, are you ready to invest in upcoming ICOs? You can find all of them at this site. Are you ready to either lose all of your money or make tons? To lose money, or to realize a spectacular ROI: that is the question we yet cannot answer.
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