With Bitcoin surging past The $4000 mark, all the commotion about Segwit, hard forks, and the creation of a new currency 'Bitcoin Cash' with an immediate market cap of around $6 billion, out of thin air, cryptocurrency has never been so mainstream. With a total market cap of $87 billion, spread across 800 currencies, the crypto space all of a sudden seems very appealing, to investors and the general public alike. So how can the average person get in? ICOs.
ICOs have been likened to a kickstarter on steroids with its "1000X improvement in the time-to-liquidity and a >100X improvement in the size of the buyer base relative to traditional means for US technology financing .” (Thoughts on Tokens, by Balaji S. Srinivasan.) "Tokens will break down the barrier between professional investors and token buyers in the same way that the internet brought down the barrier between professional journalists and tweeters and bloggers".
So what is an ICO?
An ICO (initial coin offering) is the equivalent of crowdfunding, in the crypto space. Companies attract investors by setting up their own cryptocurrency coins or 'tokens'; a scarce digital asset based on the blockchain technology, tradable on crypto exchanges. Somewhat similar to an IPO, except it is a more distributed, and flexible version, without all the stipulations (or at least for now).
The main advantage of ICOs is that anyone can get in, with a minimum amount of money, however much one can afford, let's say $500, can buy a substantial amount of coins (as the new coins; 'Alt coins' are still up and coming and priced low, most are still under $1!) and see a good return of x10 upwards, as the company grows and the price rises. Markets are more volatile so you're likely to see a fast return on investment as opposed to the fiat markets. Can you become a millionaire from a meek $500 investment in the stock market? How many shares would that buy anyway? In the crypto markets, that is a potential reality!
People who bought Bitcoin back in 2011 when it was $1, or even $100 in 2013 are today's multi millionaire big players in the space, reaping the rewards now in 2017 where the price is $4212 (as of this post). That's why everyone is on the lookout now for the next Bitcoin!
ICOs are companies building software/ products/ services on the blockchain technology so it is essential to look at what blockchain technology aims to achieve and how that impacts society.
The core values and aim of blockchain technology is to decentralise power and distribute wealth across a wide spectrum, rather than in the hands of a profiteering few! The community become active 'participants' and wealth created is spread all around. Investing in an ICO surely falls along the lines of said values of spreading the wealth; as the company does better, so do you! Not so sure about decentralised power though, as at the end of the day there is a centralised team working at the company, remotely or in-house. Yes most are open source projects and all the codebase is available on GitHub, but come on, how many of us are skilled developers and can actually code? Quite a lot, but not yet so! Nevertheless, ICOs are still appealing.
This year, all ICOs combined raised around $1.3 billion in funding. The top 3 players were; Tezos (a new cryptocurrency with features like a self-governance system and the ability to create smart contracts) raising just over $232 million, Bancor (a cryptocurrency with a protocol to create a new generation of smart tokens) raising $153 million and Status (a decentralised messaging app) raising $90 million. See image below for the full list of top 10 ICOs in 2017 obtained from coinschedule.com. What's more interesting is that ICOs are now finding creative new ways for promotion, trying to infiltrate the mainstream by using celebrities like boxer champ Floyd Mayweather to endorse and promote their token sales, like Stox; a predictions market platform (who managed to raise a $33 million worth of Ethereum) just did.
With that much potential of raising funds, along with the absence of regulations and a regulatory body comes a lot of room for fraud. No doubt, the question, is this a scam? Enters our minds as we skim through the lists of active and upcoming ICOs. This is why the boiling market recently caught the attention of the SEC (the Securities and Exchange Commison) in the US. It issued a ruling that some of the "coins" are actually securities and are subject to the agency's regulations. The ruling also provided additional guidance about ICOs and a warning about investment fraud for investors wishing to invest in ICOs. It still remains unclear whether ICOs will be regulated in the future, but for now, chasing after the next big thing, and seeing coins like TenX's 'PAY' rise over 800% (from around $0.6 to $5.00) in price, in less than a month has never been more fun!
This is a well thought out and thorough article - very impressed! I'm sure others will take great advice from this.
reminder... If anyone is thinking of investing, please ensure you do your due diligence!
Thanks for the reply. I really believe there are great returns to be made from investing in the crypto world and would love to spread the message! Of course doing your own research is always important :)
I'm hoping that Tezos does as well as TenX did. I'm also really thinking about getting in on Unikoin--with Mark Cuban in on it I'm thinking it might be a good call.
Thanks for mentioning Unikoin, will definitely be looking into it. Cindicator and Monetha are looking like good ICOs to get on board, and of course coins like BAT (BasicAttentionToken), ADX (Adex), ZRX (Project 0x), DNT (District 0x) are good investments as they haven't yet pumped to potential!