ICOs 101 FAQs
Initial Coin Offerings, a.k.a. ICOs, are the buzz word of the moment in the Crypto and Blockchain spaces. And a lot has been written already about them. But if you are still wondering and looking for a one-stop shop to answer all your potential keep questions in plain simple English, then welcome and please read on!
In a nutshell, what is an ICO?
An ICO is a digital coin / token sale by a company (typically a tech related start-up) aiming at raising fund in an established crypto-currency such as Bitcoin or Ether. In exchange for their cash, investors get tokens granting them access to some products or services provided by the firm raising money. Those tokens then also usually become tradable on crypto-currency exchanges, turning them into speculative assets as well.
What do we mean when we say that they’re getting “big”?
With ICOs, the Blockchain technology gets a good shot at eating a piece of some traditional and huge corporate finance turfs, such as Venture Capital and IPOs, finding a solid use case with true potential. Talking numbers, the capital raised during the first half of 2017 amounts to more than $1.3bn (following the bullish trend of $26m in 2014, $14m in 2015 and $222m in 2016), with Tezos and EOS.IO setting recors by raising more than $200m each.
What’s so convenient about ICOs?
ICOs hit a sweet spot by tapping a huge pot of mainly unsolicited cash held by long term investors in crypto-currencies. And by leveraging a technology that allows for fast and clean execution, they allow to raised millions of USD in a matter of 30 minutes to a couple of weeks. Finally, they are unregulated for the time being (designed as much as possible to not be labelled as securities sales), making them light in terms of paper work compared to a classic fund raising exercise.
Any risks involved?
The absence of regulation also means that there is very little investor protection, which opened the door so far to some scams and scandals, such as in the DAO case (an Ethereum based smart contract which got hacked and drained out of its funds). So for the time being, they’re probably more suitable to savvy investors with appropriate risk profiles.
And finally, where to get more information about ICOs?
The industry of analytics and information around ICOs is still very young, but getting structured rapidly. Among others, ICO Tracker and Smith & Crown are providing solid lists of upcoming ICOs, ICO Rating is developing a platform to provide due diligence information and rating on offerings, while Crypto Compare is offering a comprehensive overview of existing coins across the board.
