The ICO Concept: How it is shaping the Cryptocurrency Economy
A lot of companies are looking for ways to raise money through ICOs (Initial Coin Offering). The mind-boggling list ranges from banks to online sports gambling all fighting for a scoop of this digital generation fascinated with a digital world providing a medium for rapid fundraising. An ICO uses the same concept as an IPO in security and shares issuance. An ICO gives the investors rewards in form of crypto coins or tokens. Once an ICO issues tokens to an investor, it allocates a value to the token giving the investor ownership and voting rights with regards to the tokens. In some cases, the investor is even eligible to receive dividends.
Unlike IPOs, ICOs do not give investors company ownership rather it gives them access to certain company projects. It is one of the biggest and most productive ways of crowdfunding a crypto project. The fundraising for a specific ICO is open for a short period of time but it can be carried out several times in the lifetime of the project to increase the value of the tokens before the final release date.
Features of an ICO
- It is purchased to allow for participation in a particular project or economy.
- Coin ICOs gives you rights to take part in a particular project whereas token ICOs gives you ownership rights and royalties to a project.
- One is not automatically guaranteed to voting rights once they have the token ICOs but one is guaranteed to have input throughout the projects life.
- ICO prices are determined by project or economy creators.
- Once the tokens or coins are open for trading in the market, the ICO concludes.
ICO Trends shaping the Crypto Economy
- Emergence of Utility Tokens
None of the offered ICOs has utility yet and investors are wondering how they will behave once they do. Research revealed that tokens need to give their holders a reason to have them or their value would decline.
- Increased Consumer sophistication
More people are getting to acquire knowledge of tokens and ICOs. Communities are finally getting the grasp of the industry and ICOs vocabularies have increased. Regulation concerns have created an awareness around the two ICO groups, that is utility and securities. Entrepreneurs are now getting better and more confident in describing and marketing their innovations.
- Growth in Funding Pipeline
The investments in tokens are not shrinking anytime soon. The sizes, however, are subject to more changes. The deals are getting bigger by the day and smaller yet faster rounds are currently taking place. Most investors predict that more tokens are going to be offered in private sales and in the long run, public sales will disappear.
- Prolonged Regulation Wars
The crypto community will have to wait longer for any clarity in regulations by global governments. The ICO keen on rules has to interpret the rules with past rulings in other industries. Enforcement enquiries will not die down for ICOs. With the increasing number of ICOs and the complex and risky nature of this industry, regulators have responsibilities to protect investors from another bubble eruption and fraud. Legal and enforcement agencies taking action on fraudulent and scamming companies would be a great place to start.
- New way for traditional Tech Companies to decentralize (raise money via token sales)
Blockchain technology has paved way for new innovations in terms of products and services for many tech-savvy companies. Most investors are looking forward to tech companies selling ICOs to raise more funds and issue tokens. Telegram has already issued a $2 billion ICO and Mark Zuckerberg said he is dedicating 2018 to study blockchain technology. Most tech giants are doing a research to ensure they are not missing a great investment opportunity.
The ICO tokens are considered very liquid and most companies are opting to go this way instead of having venture capitalists invest in them and holding the cash for very long periods of time. With the available market demand in tokens, the ICO investors have the freedom to cash in and out anytime they see fit. However, investors need to carry out an extensive due diligence as there are no regulations governing the ICO economy giving an opportunity to fraudulent and scam companies.
ICO rating agencies have come up to carry out the much desired due diligence on investors behalf. They provide an analysis of all information provided reducing the risk associated with ICO investments. Their research is published providing a cover and some credibility to the ICO market.
For an investor to join the ICO market, it’s as easy as looking up at exchanges and social media sites that have news on all the ongoing and upcoming ICOs, carry out due diligence on the projects that interest you, open an account, acquire the tokens, and congratulations for joining the digital ICO market.