No doubt, the increasing victory of blockchain and cryptocurrencies in the financial system has created space for more ideas to flourish. Why it is hardly believed that there are still people who do not understand the rudiments and the evolving concepts coming in day by day, there is an increasing rise of a new phenomenon, which according to movers and shakers of the crypto-world is revolutionising the way capitals are being raised in entrepreneurship community.
There is now a paradigm shift in how capitals are being raised. Venture capitals, crowdfunding and Initial public offerings (IPO), which are widespread, are already packing into obscurity through the advent of Initial Coin Offering (ICO).
So, how does Initial Coin Offering (ICO) works?
Initial Coin Offering (ICO) is a 21st-century state-of-the-art crowdfunding system employed by startups to raise early seed investment. The idea detours the age-long investment protocols. Financial experts declare that it is an unmonitored way of raising fund for cryptocurrency startup. During ICO campaign, a particular portion of the cryptocurrency called token is sold to those who desired to invest in the project; they are regarded as early backers.
In an ICO, tokens are acquired. It is like Initial Public Offering (IPO) where investors acquire shares of a firm. Click here to learn more about the future of money here.
Like shares tokens are coins tendered to investors during an ICO and are seen as the equivalence of shares acquired during (IPO). This tokens or coins are as well called crypto-coins.
Some financial experts conclude that an ICO protocol is not regulated and give founders the opportunity to acquire capitals beyond what is required to start up a firm.
A bit look into the history of ICO
In 2013, Mastercoin employed the use of ICO and it today said to be the first known ICO in history. Around $600,000 was raised to fund Bitcoin exchange and platform for financial trades.
Bitcoin in 2009, became the first cryptocurrency, creating avenues for other altcoins like litecoins, ripples, Ethereum to fall into the circle of cryptocurrencies. Visit here to learn about the history and the journey so far on ICO.
The first successful ICO paved the way for startups to use the idea of securing funds for their innovations. Since 2013, ICOs have generated a whopping sum of US$327m through pair-to-pair fundraising.
Summarized stages of an ICO
1. Pre-Announcement Stage:
An ICO project needs to be pre-announced to get more investors to buy the idea. It is otherwise regarded as the marketing stage of an ICO. Prior to the announcement, a detailed explanation of the project, called the white paper, is made. This paper gives a detailed insight to aspiring investors/backers, it touches grey areas with expository views, and provide an account of how the project is to evolve.
The moment the whitepaper is circulated, aspiring backers look into it to determine the prospect of the idea, and give cogent feedback which decides if there would be investors for the project. The company then address the objections raised in the final draft of the white paper.
2. Offering Stage:
After complaints are looked into, the final draft of the whitepaper is presented to interested backers, outlining the details of the project, the needed capital, and the timeline of the project.
Also, the financial percentage (token) to be sold as ICO is stated. Once the offer is signed, the date for the commencement of ICO is announced with a massive campaign launched to get more backers.
3. Marketing Campaign:
The intensity of marketing campaign determines the amount of capital is raised. It is crucial that the campaign is brought to aspiring investors, companies and individuals. It is better to employ massive online campaign to better reach more backers in a short time. Read here how to on how to nail your marketing campaign on ICO.
4. Buying and Selling Period:
After the enormous campaign comes the token buying and selling period. This time, the startup company must have identified an exchange for the token to be sold. Some startups use bitcoin or notable altcoins.
Types of ICO
Investors do want to know the kinds of ICO that a startup employed before thinking of investing in it. Knowing what kind of ICO a venture seeks to employ will make one aware of the risk involved.
Below are types of tokens in ICO.
1. Currency Tokens
These are tokens or cryptocurrencies used in buying and selling goods online. They are as well used as a store of value. Unlike our fiat currencies, cryptocurrencies functions outside the confine of a central bank, hence, decentralized. Examples are bitcoin, litecoin, Ethereum etc.
2. Tokenized Securities
Tokenizes securities are otherwise regarded as security or equity tokens. It is more of buying a portion of a company, i.e. shares after a token sale is completed. This idea is more or less of stocks and denotes that one is part of the owners of the project invested into. Check out how your security tokens work at Commbank.
3. Reward/ Reputation Tokens
This token is shared among users of a platform as a reward for using the platform or for achieving a given task. They are usually served to people as a result of loyalty to a platform.
Ongoing Crypto Innovation
Cryptocurrency is constantly going through major innovation each day. This is not just a mere investment but a real invention of a cashless transaction.You probably do spot Bitcoin ATM machines everywhere. Cashless transactions are not a science fiction anymore but an everyday reality. Taxi Cash™, an Australian innovation on driverless or standard car rides, making travel global, cashless and international transaction free, by using crypto tokens.