Why Investors love ICOs

Why Investors love ICOs

Brave, a new style of Internet browser, was looking for funds to launch its new startup, its founders chose to go the route of an ICO. The founders, who came from Mozilla, were well enough known to have borrowed from a bank or sold equity, but instead they raised capital by selling digital tokens using blockchain technology. It is one of the more famous ICOs, because it raised $35m from only 130 investors in less than a minute.

ICOs are future of investing

Believers in ICOs, say that this strategy is going to be the future of investing because, “it enables consumers to benefit more directly from the popularity of new technologies than they would if they owned a traditional stock.”

The ICO would not have emerged without blockchain technology, which is the central platform of the businesses offering an ICO. The coins or tokens issued by the ICO are based on the blockchain and help investors make money.

How investors make money with an ICO

How does an ICO help an investor make money? Fortune magazine explains it like this: “By distributing tokens in an ICO, a startup gives buyers early access to its technology, to use however they see fit. If the service or product catches on­ — or in some cases, before it even launches, if it generates a lot of buzz — the buyers can sell their tokens on secondary markets.”

The Ethereum ICO

Ethereum, for example, is the most famous ICO, and its blockchain technology is the platform for all subsequent ICOs. It raised $18 million in 2014 by selling tokens that facilitate smart contracts on the blockchain. Today Ethereum-powered contracts are proliferating, and the tokens had a market cap of $35 billion as of mid-June, according to Fortune.

Cryptocurrency is growing at speed

These spectacular figures have fuelled investors’ appetite for ICOs with the result that blockchain-based startups are appearing at speed. So much so, that the combined market cap of the world’s cryptocurrencies has grown almost nine-fold in the past year, and has passed the $100 billion mark. But, even companies that don’t have blockchain supporting their core product are getting into ICOs. One example is Kik, a messaging service that is issuing tokens in the hope it will encourage more “person-to-person payments and gaming on its platform,” says Fortune.

Legal confidence in ICOs

Another factor that has boosted ICOs is that investors now have more confidence in the regulation of these token sales, or coin offerings. Leading U.S. securities law firm Debevoise & Plimpton, which advises on Fintech, has collaborated with Coinbase, one of the top cryptocurrency exchanges to create a “best practices for ICOs.” This includes the suggestion that “ICO candidates shouldn’t market tokens as the equivalent of an investment. They should pitch buyers on what the tokens can do, and not on what they could be worth.”

With so much innovation emerging that uses the blockchain we can expect to see investors get even more excited about its potential over the next few years. Now is the time to invest in an ICO and reap the gains of being in from almost the beginning.