Initial coin offering relentless hype has caught the financial houses and venture capitalist who is seeking for the competitive edge in this latest technology trend. It is not much different from traditional way startup are funded before but very different in the sense that investors are not inventing solely for their return on investment but as a support system although they get to gain whenever the invested startup appreciates in value and token appreciates.
Initial coin offering involves a startup creating a something new, unregulated cryptocurrency or digital coin at discounts thereby raising funds to finance a startup, this support system in the form investment helps startups whether the stormy start to life for the new venture and also shield them from handing (stakes or shares) of their company to outside investors in the shape of venture capitalists or shareholders. According to Forbes August report, around $2.3 billion has been raised to date in initial coin offerings and dubbed future of money raising to fund startups.
Aftermath of 2008 financial collapse saw the emergence of bitcoin; today several digital currencies have sprung up collectively referred to as altcoin (alternative coin), these are litecoin, ethereum, zcash, dogecoin and a host of others, as at present time, the market capitalization for these cryptocurrencies is worth excess of $150 billion.
With this rapid success of cryptocurrencies and the technology behind them which is known as blockchain, a blockchain is a decentralized ledger; a new and transparent way to invest in the early stage or a startup emerged with this known as initial coin offering.
Initial coin offering investment is done with bitcoin, ethereum or legal tender, you then receive a token in the company (rather than a stock). An investor buying coins in an ICO is able to trade, sell or hold their tokens (asset). The return for investor or the revenue gained from their investment is different, some investor is granted access to the startup’s platform, can participate in a given project by the company or allowed to use the company software.
Notable individuals’ investors and celebrities have thrown their weight behind initial coin offerings while launching something similar, billionaire investor Mark Cuban throw some weight behind Seattle sports betting startup outfit called Unikm, Unikm is a sport betting coin that is powered by ethereum blockchain, Paris Hilton promoted an ICO named LydianCoin on her twitter handle and Floyd Mayweather publicized the stox.com ICO just recently on his Instagram account.
This latest technology trend in digital currency: ethereum has been a major process of setting up an initial coin offerings. Startup’s seeking funds have found it a lot easier to create a token using ethereum blockchain and efficiently aggregate a large sum of money. An ico investor hope is for major return and a fast one at that, perhaps at the explosive pace of bitcoin rise in value currently quadrupling the past five to six months now worth $4,000 for a coin.
Some technologist and financial adept professional are viewing this trend, they are predicting or seeing a bubble ready to burst, initial coin offering explosive growth is somewhat out of control. Vitalik Buterin on financial magnates website said investors are increasingly confident in the coin offerings, the market is “growing at a rate that makes it hard to control”. He said if the bottom falls out of the market or this wild west of fundraising is hit with stringent regulations, which coin or companies will survive it is anyone’s guess.
In the past, before the invention of cryptocurrency and bitcoin, this wouldn’t have been possible, bitcoin paved the way for the altcoins and now initial coin offering is the next step or the latest big deal in the world of digital currency.