Do you remember the once popular way for new startups to raise funds that didn’t need venture capital — which was highly selective because of the return on investment? It was known as the initial coin offering (ICO). Initial coin offering offers investors with units of crypto-tokens in the forms of Ethereum and Bitcoin.
Some venture capitalist firms even believed that the ICO can disrupt the traditional IPO, or initial public offering, for a company who wants to list their company on the stock exchange to raise funds for their business like their offshoot crowdfunding platform Kickstarter and Indiegogo. However, the difference between ICO and crowdfunding is where ICO is set to fund blockchain based startups and blockchain based projects, normally, it is done in a presale and it has been very successful.
How does an ICO work?
I still remember listening to a podcast which a couple of people were talking about the potential of ICO for startups — especially blockchain based startups and decentralised apps startups. All of these startups became alternatives to the current startups that brought innovation and disrupted the current market like Airbnb that disrupted the traditional hotels’ business model — while Uber had disrupted the traditional cabbies in San Francisco business model, which had highly monopolised the market. These business models were known as the crowd based or marketplaces which were based on trust by both parties.
ICO is an offshoot of crowdfunding where a project or a startup founder decided to run a campaign to collect funds for its project from strangers. Even a Malaysian social enterprise startup that allows college or university students to launch their campaign like Kickstarter to finance their studies without student loans. However, the only difference here will be a token sale being offered to you and you can trade the token on cryptocurrency in a pre-sale. One of the easiest token sales will be the Ethereum token with its market capitalisation and it was done with the Ethereum smart contract app.
The most popular Ether will be the decentralised autonomous organisation (DAO), which is a distributed investment company that’s fuelled by Ethereum. An investor can receive some Ether DAO token with their market price and enable an investor to participate in the DAO governance. Since then, DAO is the blueprint for fundraising and crowdfunding for startups and projects. However, the risk of being hacked is higher compared to traditional fundraising through a venture capital firm or a crowdfunding platform because DAO is vulnerable to hacking and fraud.
Examples for successful Initial coin offering on Ethereum are:
They are many ICOs for them to explore new ways to connect the application with the token and to leverage smart contracts to keep an ICO secure and mitigate risks for investors to invest. The future of ICO is immense because it enables everyone and companies to easily trade tokens and raise funds freely. This will make the investment and stock trading more inclusive as social entrepreneurs, tech company founders, startup founders and Bill Gates had been envisioned by them. Here is when the global financial system will be disrupted.
ICO is still a grey matter, but the regulators are aware of them and start to regulate them while other jurisdictions are adopting a wait and see in the latest development of these new horizons.