Initial Coin Offering : Is it a bubble or its the future?

Initial Coin Offering is the hot trend booming in the Blockchain world. Consider it as a funding catapult for new-born cryptocurrencies to come alive into the digital world. Simply speaking, an initial coin offering development is more or less like a fundraising platform on which investors can buy some or many units of latest cryptocurrencies in exchange of older and higher-rate cryptocurrencies like Bitcoins and Ethereum.

As risky as this may seem, people are putting faith in the system by investing heavily. According to a post by Economist: “Nearly $250m has already been invested in ICOs, of which $107m alone has flowed in this year,” which is indeed a huge number. Moreover, with the success of Ethereum ICO, the approach has gained even more strength. This heated up space has opened funding opportunities for startups around the world.

Cumulative Blockchain Investment 2017 YTD (Source- Coindesk)

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But here comes the twist! Lately, in the month of September, China has banned ICO fundraising thus, seriously disrupting the economic and financial order. While the SEC in the U.S. has released warnings about the risks of token sales, China has already implemented regulations around it.

What’s the frenzy all about?
The question here is that the recently ballooned initial coin offering market going to stay or burst out as a bubble? Is it ready to replace the traditional funding approach for startups out there? Well, let’s look on some facts and conclusions here.

The Risk Part
What makes the initial coin offering development approach “risky” is that the coins being exchanged in the markets are serving the purpose for businesses that don’t even exist yet. The process is more or less to look at whitepapers and judge which idea is going to work out the best and eventually invest in it. Investors interested in the marketplace are depending on the chances and betting on the business ideas that capture their interest and trust.

Another drawback of ICO investment is that it isn’t very tax-efficient on issuers’ end. Consider the scenario where a startup successfully raises money via token sale. For the final revenue generated, they’ll have to pay tax according to the money raised. Whereas in the VC funding approach the process is inexpensive, uncomplicated and less risky.

While giving an interview to CNBC, Wikipedia’s founder Jimmy Wales said, ““I think blockchain is a super interesting technology but there are a lot of fads going on right now… There are a lot of these initial coin offering which are in my opinion are absolute scams and people should be very wary of things that are going on in that area.” However, he added that, “blockchain will be with us for some time to come.”

Since ICOs are unregulated, they fail to provide protection to investors thus, resulting in fraud or loss. The recent Tezos ICO controversy is an outright example. The dispute has highlighted the risks in the current frenzy over initial coin offering (ICOs) which have raised more than $2 billion this year. Therefore, it becomes highly important to judge an initial coin offering rightly before investing in it.

How to access an ICOs worth?
Keep an eye on the product dimension. In the case of ICOs many people try to follow the approach of investment of that of an IPO as they both seem similar investment options. However, that’s not the case. You should be able to judge the product idea on the basis of the following categories:

  1. No product- High risk as there is no face value to the idea. Example- Waves Platform.  Even though it raised 20 million USD there’s no such existing thing yet.
  2. Initial-level product- Can be considered as an option for investment. Example- Iconomi. Though the technical code for the face product doesn’t exist the company doesn’t hide it. They gained people’s confidence via their existing product Cashila- A reliable product that is in the markets for about a couple of years.
  3. Fully-functional product- Super rare but promising product category. Example- Ethereum

The Advantage Part
Launching an ICO however, is an attractive model as huge amount of money is being invested by people despite the risk factors. The incredible price rise of not-so-old cryptocurrencies like Bitcoin and Ethereum is another fact that strengthens the concept.

Consequent market price rise of Bitcoin (Source- blockchain.info)

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Besides, when compared to traditional investments and VC funding for startup ideas, the ICO launch approach stays ahead in the game. Contrary to the traditional system, you don’t lose time in raising, nurturing and proving your startup idea on your own, rather you save a lot of time as you get the money in the initial-most stage.

Also, with token sales, the supporters of your startup idea believe in it and thus, eventually turn into early adopters and campaigners.

Final Verdict:
There’s no doubt in saying that the ICOs have worked extremely well in the past but in order for them to maintain the success rate in the future, it’s necessary to persuade potential investors.

As long as people see digital cryptocurrency as an asset, the valuation of new coins will keep on increasing. All that the market needs in order to grow is more investors and even more impressive projects in the years to come. The ICO market space has the potential to expand not immediately but eventually.

 

Everything you wanted to know about “How to Launch a successful ICO”?

What is an ICO?
Initial coin offering or ICO is a medium of exchange or trading of cryptocurrencies of liquid value for future cryptocoins. It is used to raise money to form a new cryptocurrency project. ICO’s are done by the project’s supporters and developers to mutually gain from it by distributing and regulating initial coin supply.

History of ICO

History of ICOs : Source BlockchainHub

How ICO’s work?
ICO usually takes place in the early stages of the project. Initially, ICO’s were introduced with the idea to pre-sell coins/tokens to investors and fund new projects. A whitepaper is presented by the entrepreneur describing the technical specifications and business model of the project. A timeline is set and a coin distribution and target budget are decided. At the crowdfunding stage, new tokens are purchased with established cryptocurrencies like Ethereum and Blockchain.

Essentials to Launch ICO

  1. Proper back-end infrastructure
  2. Roadmap and Whitepaper
  3. Checking regulations and ensuring there aren’t any security violations.
  4. Managing and maintaining Escrow account
  5. Marketing and PR

We have summarized the major steps that will give you an insight on “How to launch a successful ICO”?
Step 1 : Creation of new cryptocurrency on a protocol such as Openledger, Ethereum or Counterparty.
Step 2: An arbitrary value is assigned by the team based on network’s worth at the moment.
Step 3 : Determination of price dynamics based on market demand and supply.
Token dividing is done on basis of individual investment of a person i.e more tokens are allotted to person who has invested more. More awareness about the new cryptocurrency is generated to encourage participation and reach a point when the actual price surpasses ICO price.

Pricing mechanisms of ICO

  1. Undetermined Price ICO : In such ICO’s, initially the developer may not sell his tokens thereby allowing investors to take new tokens proportionally based on their investment. Such ICO’s enable 100% ownership of new tokens by a single investor too.
  2. Fixed Price ICO : The developer fixed a price or exchange rate of the new token. Such an arrangement allows multiple token purchase at a fixed price. Fixed price ICO’s are usually accompanied by a freezing period which is a lock in period where they can’t trade their tokens. Post the freezing period, investors can list and trade their tokens.
  3. Dutch Auction ICO : In such ICO’s the token sale starts with the highest price and token price decreases proportionally till the end of token sale.
  4. ICO with price rise : A fixed exchange rate is set by the team and early investors get best price per coin ratio as  the rate increases steadily with time.

How are ICO’s like IPOs and crowdfunding?
Just like an IPO in an ICO the tokens are offered to raise funds in a pre-decided time frame. The tokens when purchased can be traded on publically accessible exchanges.

ICO’s are also like crowdfunding and in fact in initial stages were referred to as “crowd sales”. They can be used to fund projects, investors may purchase rights to trade tokens.

Let’s take Launch of 6th highest funded crowdfunding project Ethereum ICO as an example. It was the second most successful ICO held! Tokens distributed were 60,000,000 and were mined through proof of work protocol that later on changed to proof of stake. Application type was decentralized and smart contract based. ICO was held for 42 days ( 20th July 2014 to 2nd Sep 2014) and 31.5k BTC (worth approximately 18.4 million at that time).

Concerns associated with ICO’s
No doubt ICO’s solve the problem of initial coin distribution however in lieu of some controversies and failed ICO’s investors are a little hesitant to invest in ICO’s.

10 tips for investors to pick the right ICO
1.Codebase
Codebase helps in making the process more transparent and enables investors to look at accomplishments, issues and current state of the project.

2.Whitepaper
The whitepaper should provide all the required information in a succinct form so that potential investors can make an informed choice.

3.Technical Expertise of the development team
This determines the feasibility and fruition of the project. The team should be technically sound and should have the required skills to develop the project. The team should be truly involved at each stage to ensure that milestones decided are achieved within the agreed timeframe.

4.Projected value of the token
Investors should check if the token they are about to acquire would grant a return on their investment eventually and would actually be useful. They should astutely check the distribution strategy to assess incentives in the longer run.

5.Beta Preview
A beta preview is a proof of an early version of the product and is a great assurance.

6.Projected Launch Date
A clear road map and a launch date are vital elements. They establish accountability and gauge commitment.

7.Freezing or lock-in period
Is there any freezing or lock-in period? Will you get access to the new tokens or coins within 3-4 months of the ICO? These answers need to be well thought about to determine the ownership and trading opportunities and taking calculated risks.

8.Cap on coins/tokens?
Proper information on number of coins to be created should be given. Some teams opt for creating more coins if need be. Its advisable to have a cap so supply is fixed and demand can be regulated.

9.Fair Fund Allocation
Prospective investors should check and evaluate the allocation of tokens

10.Don’t avoid red flags
If there are many red flags and unresolved concerns then probably the investor should reconsider risks and decide accordingly.

About Us
Techracers as a blockchain studio is committed to sustain the innovative momentum of blockchain as a technology and have employed skilled professionals to facilitate ICO development of blockchain solutions and applications. We ensure that our client’s needs are aligned with our technical expertise to meet the project’s objectives within a reasonable timeframe.

We believe that cryptocurrencies are of great value and can coexist with fiat currencies. You can contact us and get more insights on “How to launch a successful ICO”? Our team of experts have developed a blockchain based decentralized platform which aims to streamline the cryptomarket and prevent the greed to capitalise.

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