Bitcoin’s incredible bull run as 2017 drew to a close achieved two things.
On the one hand, the entire world learned of the incredible potential of cryptocurrencies and blockchain thanks to countless summary articles and hastily written primers in tabloids and broadsheets. These traditional media outlets didn’t quite know how to present the new technology without relying on lazy cliches and a nudge-wink implication that all crypto coins were scams.
So it’s understandable a significant number of those people reading breathless, often wildly inaccurate accounts of how cryptocurrencies and blockchain operate immediately came to a conclusion: the crypto currency fad was over and early 2018 would see the death of the ICO, those initial coin offerings powering the blockchain revolution.
The naysayers were wrong – the overall number of ICOs being held in a given month may indeed have peaked for now, but research has shown in the first quarter of this year, more than 390 ICOs were completed, raising a total of between $3-7 billion. Numbers are still being crunched and different research methodologies account for such a broad range of possible gains, but even at the lower end of estimates it is clear half the total money raised for the whole of 2017 has already been raised as of May 2018, meaning rumours of the ICO crowdsale’s death have been greatly exaggerated.
The initial coin offering is not only alive and kicking, this new crowdsale approach to fundraising is evolving to meet a global appetite for a new way to do business.
ICOs vs IPOs
But what is the meaning of an ICO crowdsale? An initial coin offering shares some similarities to its near-namesake, an initial public offering or IPO, the flotation of a business on a stock exchange. Businesses, entrepreneurs and traditional investors and financial institutions have taken that route to market for hundreds of years, of course, but commercial creativity means the ICO market today offers a much greater level of flexibility and freedom.
With the right approach, this presents funding opportunities to start-ups and individuals which would otherwise not have ready access to the venture capital investments attracted by pre-blockchain, high-profile web products and services. That same freedom does leave areas open to abuse as the industry and international governments come to grips with the new models, which is why due diligence, thorough research and plain common sense is so important for would-be investors.
ICOs for pure payment tokens essentially ask investors to place faith in the currency as a form of payment that will be accepted today and in the future. This can naturally lead to an inappropriate focus on cryptocurrency speculation, which is one of the reasons China banned ICOs in September last year.
Payment tokens are freely transferable via a growing number of exchange platforms, so it isn’t surprising the financial watchdogs of many nations want to see these ICOs regulated and scrutinised in the same way they monitor fiat currencies such as dollars, euros and pounds.
More Types Of Token
Asset tokens promise a return on an initial ICO investment, either soon after the time of purchase, or at some point in the future. These are the tokens that will initially interest most traditional investors as they offer familiar benefits not generally seen with other kinds of token ICOs.
An ICO for an asset token gives investors a direct stake in the company and opens up an entirely new way for smaller companies to quickly attract investment, thanks to the success of crowdfunding sites like Kickstarter – which doesn’t offer investors any equity, but taught the world about crowdfunding with swag – and more recent arrivals like CrowdCube, which does offer genuine, tradable equity to investors.
Utility tokens have proven very popular in ICOs as they generally promise access to a site or service attractive to tech-savvy early adopters. Investors in these ICOs also act as unpaid brand champions, often in the hope of increasing the value of tokens they might have bought, or simply to spread the word about a great new service. Companies looking to hold a utility token ICO have been urged to ensure they have met all requirements as utility tokens can often share similarities with asset tokens.
Marketing techniques and strategies have also come under scrutiny and ICO organisers will be forced to make changes in 2018 and beyond. The industry as a whole still takes far too much of a relaxed approach to how most ICOs are promoted, but analysts and researchers expect ICOs to become more sophisticated, fully-formed investment opportunities in 2018.
Where marketing materials, teams and contracted agencies have been criticised for not painting a fair, accurate and comprehensive picture in the past, greater scrutiny from regulators and experienced investors means only the most professionally presented ICOs will gain the required attention and investment.