ICOs - Modern Business Funding Techniques
by Josh Wardini
Cryptocurrency is a form of digital currency that is currently taking the world by storm. Many of you will have head of Bitcoin. It is one of the most popular digital currencies in the world.
Within the cryptocurrency world, a new type of funding has developed that has great potential and could change the way startup businesses gain funds in the future - ICOs. This article and infographic look at what an ICO is, how it works, and how businesses profit from this new type of funding.
What Is An ICO And How Does It Work?
ICO stands for initial coin offering. At its most basic definition, an ICO is a process where investors buy tokens of a new startup project for actual liquid cryptocurrencies such as Bitcoin or Ethereum.
For example, business A has developed a new cryptocurrency called businessCoin. Business A creates an ICO and sells its cryptocurrency to the public in exchange for Bitcoin. The investors receive a brand new cryptocurrency that has the potential to increase in value. In return, business A receives large volumes of Bitcoin to fund the development of its cryptocurrency and business plan.
ICOs are extremely similar to IPOs (initial public offering), used to raise funds for businesses by selling shares. Unlike them, however, ICOs are not always about buying shares.
The technology behind an ICO involves the ERC20 Token Standard which formulates much of the development process and rules behind creating a new cryptocurrency and distributing it to the public. This standard has made the whole process much easier, and is part of the reason why we are seeing an increase in the number of new ICOs entering the market.
What Are The Negatives And Positives Of ICOs?
Now that you understand a little more about ICOs, we can look at the positives and negatives associated with this type of funding. As with any type of funding, an ICO is certainly not flawless and as it is a relatively new technology, there are practically no regulations in place or safeguards. The following is a list of the negative aspects of ICOs:
- - An ICO is an unregulated financial asset, therefore it could be a risky investment
- - There are many scammers in the industry seeking to solicit funds illegally
- - Many ICO investors are simply enthusiasts and thus have little financial knowledge
- - There is no guaranteed return on investment
- - The ICO cryptocurrency may fail or have little to no worth in the future
As you can see, this form of funding is certainly not a safe bet and investing in a new ICO could be an extremely risky venture. On the flip side, however, as more businesses use ICOs as a form of investment, regulations and laws should eventually be brought in to streamline this type of funding and to prevent scammers from extorting innocent people's cash. Whilst there are undoubtedly flaws in the ICO funding process, there is also a host of positives:
- - ICOs are open to the public and widely accessible
- - ICOs can help shape the future of the cryptocurrency industry
- - ICO tokens can be bought at an extremely low rate
- - Potential returns can be great
So, if you play your cards right, invest wisely, and do your research properly on a new ICO, there is no reason why you cannot benefit and even make a profit. Many people made huge sums of money from the new ICOs, but remember - there is always a risk!
What ICO Ventures Have Been Successful?
To show that ICOs can be a truly worthwhile method of funding, we have gathered several examples of successful ICO launches:
- - Startup web browser Brave sourced $35m using an ICO in 2017 in 30 seconds
- - Cryptocurrency Ethereum raised $2.3m in the first 12 hours of its ICO sale
- - Filecoin raised $257m during its ICO sale in 2017
These are just a few examples and there are many more success stories to be found. Many people have theorized that this type of funding will increase in the next decade. It is believed that, as the popularity of ICOs increases, experienced investors will take interest and regulations will improve.
Furthermore, as a result, the cryptocurrency market will also improve and established currencies such as Bitcoin and Ethereum will see an increase in value.
It is clear that ICOs have a bright future - there are no signs that interest in this technology will fall. The infographic below takes an in-depth look at ICOs and provides a roundup of this type of funding in its current state: