Initial Coin Offering (ICO)
Sep 26, 2018 By Katherine Flores
Initial Coin Offerings (ICOs) Question and Answer Session
Give me the bare bone basics: what’s an ICO?
Any business with computer programmers has potential for an ICO. That’s because this new way of crowdfunding works for companies as a way to create and sell their own virtual currency. Programmers usually design tokens that can only be used on a service their company provides. Some companies will offer pre-mined coins and others have a set release, much like Bitcoin, with a limited quantity from the start.
Gotcha. So, what’s an example of this in action?
[i] Filecoin raised $257 million with their coin offering. This has been the most profitable ICO yet as of August, 2018. They produced this ICO as a way for customers to pay for storage on a global cloud storage network the creators of Filecoin promise is forthcoming.
Why are we hearing about ICOs so much these days?
An initial coin offering gives young companies a way to make money without selling stock or counting on venture capitalists. This ICO boost can make all the difference for a company’s market value. They serve as an alternative to venture capital or IPO for funding a young startup’s product or service creation.
Because crypto currency creates mega buzz in the finance market these days, programmers can raise mucho dinero with it. In fact, the amount raised by coin offerings in 2017 showed a 3,000 percent increase from the money they made in 2016.[ii]
How is this similar to and different from existing crypto coins?
Similar: Inspired by traditional virtual currency, these ICO coins also have a cap to the total number that will exist. This grants the coins inherent scarcity – thus value potential . At the same time, they can operate outside the boundaries of the company’s other finances while still boosting the value of it as a whole.
Different: Although the coins in an ICO are generally purchased with Bitcoin or Ether (Ethereum’s coins), they are meant to exist independently of these traditional virtual currencies and have their own independent value.
Do ICOs function anything like IPOs?
Although both boost the company’s value, ICOs do not offer a stake in the company. An IPO sells stock to investors. So, shareholders profit along with the company. But with an ICO, the coin isn’t usually associated with a stake on the company. In fact, they’re often designed that way specifically to avoid the SEC securities laws that apply to company shareholders. Thus an ICO is much more like crowdfunding than shareholding.
If I’m not getting a stake in the company, why buy these coins?
Two reasons really. First, it’s presumed that many people buy them to use the service for which the coins are sold. This is the “promised” company offering – the teaser. Secondly, many buy into ICOs because they hope to profit from the coins themselves.
For instance, Stratis coins came out in July of 2016 and were worth less than half a penny at the time. Less than a year later in October of 2017, these same coins were trading for $2.95 – a high point. Lately, in 2018, they’re valued at $1.50.[iii] So, those who purchased them at the ICO price are still sitting pretty darn pretty with their purchase.
OK, I’m interested. What do I need in order to buy into an ICO?
All you need is some Bitcoin or Ether a and desire to spend it on one of the many coin offering creators out there. Do your research on the ICO’s company first and ask your crypto currency bros what they think. Once you feel ready and willing from there – go for it!