ICO stands for Initial Coin Offering. It is often used by startups to go around the heavily regulated process of raising capital as required by banks or venture capitalists. That is to say that ICO is an unregulated method of raising funds for new cryptocurrency ventures. It works like this: a new start-up is about to raise money using an ICO, it creates a plan of what their project is about, what the project will achieve when it has been completed, how much would be required to finance it, and how much of the realizations would be reserved for the pioneers, the acceptable type of money and the duration of the campaign.
When the campaign begins, supporters of the project buy the startup’s cryptocoins using their coin wallet. If the money raised at the end of the campaign doesn’t meet the company’s target, it is returned to the owners and the ICO is deemed to have failed. However, if the amount is achieved and the project becomes successful, the cryptocoins would increase in value.
Venture capital on the other hand, is funding provided by investors for new businesses; businesses that are believed to have high profit potential. Venture capital is not always in monetary form; sometimes it can be technical or managerial expertise and is usually offered by financial institutions, investment banks or wealthy investors in return for equity in the business.
Pros of Initial Coin Offerings
DecentralizationBeing open to the general public, anyone in the cryptocurrency can partake in an ICO so long as they can get their funds transferred in time. The idea of cryptocurrency is to make the opportunity of investment as decentralized as possible.
Crowd BackingA startup funded by ICO has the advantage of a support system that is more or less a fan base. This increases word of mouth advertising for the company and decreases the need for standard marketing and user acquisition.
Increase in Social EnterpriseAs we know, venture capitalists more often than not invest only in projects that have a high potential for return from their investment. The coming of ICOs will mean funding for many more projects which don’t have the kind of profit motives required by venture capitalists.
Investment OpportunityMost people who have invested in ICOs such as bitcoin and ether do not want to pay capital gains taxes and so are unmotivated to bring their profits offline. ICO offers a solution for those profits. Ether and Bitcoin can be converted into a new cryptocoin which adds to their scarcity and increases their value.
DeregulationICOs are not regulated. It is possible for fake startups to come into the market and defraud supporters. Users may not be reimbursed if things go wrong. However, smart contracts are now used to lock up ICO funds.
TimingWith the speed at which ICOs sell out, many people may not get to partake in the campaign for the mere fact that they can’t get their funds transferred in time
Pros of Venture Capital
Besides monetary funding, venture capitalists can provide business guidance and consultation for startups.
It is easy to make valuable connections because venture capitalists are usually well connected in the business industry.
As a business owner, getting venture capital funding secures your own finances. If the business fails, the owner is not required to pay back the venture capitalists who invested.
Loss of Control
The possibility of the owners of startups losing control of their ventures is quite glaring. This is because venture capital is basically equity financing. Venture capitalists who invest in a business have stakes in that business and depending on the size of the stakes, can assume control over or influence the company’s policies.
There are many ways to fund your new startup. Do your research and go with the one that is the best for your venture.
Related: 5 Ways to Get Entrepreneurship Funding
Since the launch of cryptocurrency (bitcoin) in 2009, several innovations have come up, further establishing the influence of cryptocurrency on global economy. However, in 2013, Mastercoin held the first ICO. And since then, several ICO campaigns have graced the world of digital currency. However, laypersons still know little to nothing about ICO. Below is a brief explanation of ICO.
What is ICO?
ICO, Initial Coin Offering, also known as token crowdsale, is an unregulated means by which startup cryptocurrency companies fund their projects. Startup crypto companies launch a project while asking for the public to buy into their projects with Bitcoin or Etherum or fiat money. The buyers get the companies subsidized tokens, while the companies get the buyers cryptocurrency or fiat money to fund and develop their projects.
An ICO campaign like IPO runs for a set time and with maximum tokens available for sale. Once this is reached, the campaign closes, and if the goal is achieved, then the company will commence the promised project with the crowdfunded capital. But if the target is not reach i.e. if by the time the campaign ends, the capital raised for the project is insufficient, then the company will refund all contributions.
What do I Gain from ICO?
Before making an investment, one must always ask the question “What’s in it for me?”
Besides helping the company to fund their projects by crowfunding, ICO is profit oriented. The companies sell their tokens cheap at the start with hope of increasing in value. This potential gain is what the public gambles on.
Like IPO, the company sells tokens which is more or less like stocks in IPO, however, buying tokens will not earn you a share of ownership in the company. You can do whatever you want with the tokens. Buyers can sell back their tokens to earn instant profit. For instance, when Storj, sold their tokens in May this year, their buyers were able to use the tokens to exchange for space on Storj’s cloud.
After a successful project, the value of the tokens would have increased and this is also profits for the buyers. For instance, when Etherum ran an ICO campaign in 2014, tokens were sold for $0.4. After the successful launch of the project in 2015, each token had appreciated and were worth $19.42. This profit is not the type you would get with IPO
What are the Risks Involved?
As mentioned above, ICO is unregulated, there’s no government backing, there are no requirements before a cryptocurrency company can go public, this about sums it up that it is a gamble.
Therefore, you can lose all your money and the website with will be shutdown leaving you with no one to report, if it’s a scam ICO. And even when it’s legit, profits are not guaranteed.
However, cryptocurrency company owners seeing that they will lose the public’s trust and the opportunities for public crowdfunding their startups imposed a self-regulatory rules.
Crypto startups now have escrow wallets, where they store up contributions, which can only be accessible after unlocking with several keys, one of which is held by a neutral third party. Crypto startup owners have also started documenting their terms and conditions, and establishing legal entities for their companies.
Come to our next cryptocurrency event in SF to learn more!
A cryptocurrency is a form of payment which is similar to the currencies commonly used such as United States Dollar or the British Pound. However, unlike these currencies, cryptocurrencies are decentralized. There is no central government to print more of them out to cause inflation. In fact, cryptocurrencies have been formulated to gradually decrease in production as time goes by. Bitcoin, for instance will never have over 21 million coins in dissemination.
Cryptography is used to ensure the security and privacy of transactions and exchanges, and to regulate the creation of new coins. Cryptography was developed during the Second World War, after the need for secure communication arose. It has undergone many development with elements of computer science and mathematical theory, and now it is used in financial system for decentralized currency.
Many other digital cash before bitcoin had the problem of users double spending the same coin, which was why they had a central server. However, since bitcoin is decentralized, it needs consensus. Cryptocurrencies employe the use of a decentralized system which allows users to make safe and secure transactions and store their currency. Once the transaction is recorded, there is no going back, it is settled in the blockchain. In fact, no one knew it was possible until Satoshi did it out of no where.
The world's first ever cryptocurrency is bitcoin developed by Satoshi almost a decade ago in 2009. A mass reproduction of cryptocurrencies has taken place over the last decade, resulting in the existence and availability of over 900 cryptocurrencies on the internet. While some are almost as popular as bitcoin, others have been relegated to the background. All these other cryptocurrencies are usually referred to as altcoins as they are alternatives to bitcoin.
Cryptocurrencies are generated via a process known as mining. Mining entails the use of computer power to crack complex mathematical problems that create the coins. As time goes on, the difficulty of mining the coin gets harder. Check out our mining article here. Users can also choose the purchase the currencies from an exchange, and keep and spend them with the use of a coin wallet.
The use of blockchaining technology is still burgeoning in the world of trade and finance. There are more applications that should be contemplated. There are other industries such as supply chain or pharmaceutical companies that could probably benefit from this.
The most popular cryptocurrencies currently are Bitcoin, Ethereum, Dash, Litecoin, Dogecoin, and Ripple.
Check out our slides on How to Get Started with a Coin Wallet to get started with cryptocurrency today!
Bitcoin was introduced to the world in 2009 by Satoshi Nakamoto, a software engineer. The whole idea was to create a currency that was independent of central authority and transferable electronically. The process with which bitcoin works:
Apart from trading bitcoins, people also mine bitcoin. It is called mining because it is similar to natural resources, there is only a finite amount of bitcoins. There is only 21 million bitcoin. Bitcoin mining is the process of adding transaction records to bitcoin's public ledger or blockchain. It helps confirm transactions that have taken place to the rest of the transaction. When a block is mined, the miner gets to collect the voluntary transaction fees from the transactions.
Since the invention of bitcoin, the level of difficulty has gone up in terms of mining. However, there are other coins that miners could choose from. As of now, Litecoin, Zcash, and Feathercoin would be easier to mine for beginners.
Why Mining is Necessary for Cryptocurrency?
There are two parts to this but the main reason is to make it expensive for miscreants to add dishonest blocks. It requires the means of adding transactions into the ledger as well.
Adding Transactions to the Ledger
In cryptocurrency, the timestamp of other participants can't be trusted. Also, there is no master clock or centralized agent whatsoever. Transactions added to the ledger in blocks (block order) is the only equivalent time.
This is all about the guessing game called "proof of work", the guessting game is not mandatory. In addition of blocks but it makes it computationally expensive which in turn makes it expensive to add blocks. This makes it expensive to act as a defense against miscreants who form dishonest blocks.
The security of the mining network is based on its decentralization, it makes the decision making in the network consensual. All the disagreements are settled by a majority consensus.
How to start mining cryptocurrency?
For more info on mining, check out our slides from our last Cryptocurrency 101 Workshop! Mining vs. Cloud Mining
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