Blockchain technology hype is the new wave for Fintech industries. Started out as a logical interface for peer-to-peer transactions with records stored on a decentralized ledger, and has currently at the time of this writing evolved to become a ‘trusted-system’ for trustless transactions or smart contract applications for business relations that require a decentralized network.
The question formed upon the premise of suggestion is which of the two concepts came first; the ‘blockchain’ or the ‘ICO’. Apparently, evidence suggests that ICOs are dependent on the blockchain network providers, therefore it is safe to assume that this solution serves as a technical placeholder for crowdfunding operations.
The blockchain is made up of an immutable digitized ledger that forms series of blocks built upon one another and is distributed over the internet. This technology has revolutionized the investment, Small and Medium scale Enterprises (SME), market capitalization, economic theories and political ideologies.
This publicly distributed ledger was initially designed to work for the Bitcoin network – the first decentralized cryptocurrency. The Bitcoin, a peer-to-peer unit of value on the bitcoin network, has the advantage of the pioneer privileges in the new age of encrypted digital asset protocols. While its founding partners may have conceived the idea to publicly distribute digital information via complex encryption algorithms to create a system of immutable documentation of peer-to-peer transactions, other visionaries have expanded the technology to include other innovative aspects of the concept that was initially unknown or fairly researched during the early days of the Bitcoin network.
Ethereum, another blockchain technology, on the other hand, used the bitcoin framework to orchestrate a new wave of publicly distributed networks, creating a platform for the creation of decentralized application frameworks. While their consensus mechanism may differ, they both provided unique practical use cases in which many cryptocurrency projects seeking to establish their own decentralized system modeled after.
An Initial Coin Offering (commonly referred to as an ICO Campaign) on the other hand is a system of activities geared towards fundraising, to provide the necessary resources needed to tackle a particular problem that could be solved using decentralized applications. Usually, a tokenized digital asset (tokens) is the initial product that exchanges cryptocurrency values for estimated worth. Upon the completion of the project, these tokens evolve to become currencies themselves and can be traded alongside their counterparts.
Before the onset of blockchain ICOs, fundraising for projects was done through traditional means like sales of stock – also termed as Initial Public Offering (IPO), loans from the banking industry, crowdfunding through solicitations, grants from government regulated agencies and private sponsors. The challenges posed by these methods could drive a project to the ground before it even had the chance to hit the investment market. Competitive projects had to have a body of work to prove the intended venture was worthwhile.
Master coin, now referred to as Omni, is the first cryptocurrency derived from an ICO campaign using the bitcoin network as its anchor. Built upon the bitcoin algorithm framework, had a successful crowdfunding event, raising the sum of over $5 million after the campaign in 2013. Consequently, this event led to an influx of many ICOs’ creation.
The Ethereum token during its crowdfunding in 2014, raised the sum of $18 million during its ICO. Another prominent early blockchain based token is Waves, in 2016, conducted its crowdfunding event and raised the sum of $16 million from its ICO. Topping that list to date may have been Filecoin, a decentralized storage network raised the sum total of $257 million after its crowd sales. The examples mentioned above are the few of many successful cryptocurrencies who have their own independent decentralized network.
Other projects who anchor their crowdfunding activities on other network service providers like Ethereum and Waves, have reported valuable prospects after concluding the crowd sales. Examples of such are Bancor Foundation, raising $153 million within three hours of the crowd sale opening. Another of such example is Golem, an Ethereum based cryptocurrency, raised $8.2 million in minutes.
It has been observed that ICO fundraising activities have at some point surpassed early-stage venture capital funding for most internet-based businesses. While an initial coin offering presents a myriad of economic opportunities and access veiled by the conventional IPO-regulated schemes, it still harbors rudimentary methodologies that are unclear to the users of the tool, hence the evident constraints experienced by startup cryptocurrency projects.
With the uprising in the creation of cryptographic digital asset protocols, it is important to note that these computer-dedicated operations have specifically designated requisites to fulfill their potentials. Therefore, concrete data must be obtained before diving into building the decentralized networks.
Startup cryptocurrency ventures often find it challenging building decentralized systems from the scratch and may need to rely on technologies that provide application services to host their startups. While this action from the onset may not apparently provide enough data to assess the project’s viability, it is probably viewed as the most cost-effective means of kick-starting a crowdfunding activity.
The fundamental principle of building a blockchain system are oftentimes in conflict with the objectives of most crowdfunding projects. Though with currently expanding use case scenarios, the applications are becoming ‘ICO-friendly’ with full-stack developers constantly expanding accessibilities to the lines of program codes.
The robust nature of the blockchain is instrumental to the success of any initial coin offering event. More than a fundraising activity, the technology on which the tokens are produced has an impact on investors’ psychology. Over the years; investors, crypto-traders, and end-users have adapted to fluid ideologies with regards to the cryptocurrency jive. This has invariably affected subsequent projects down the line – even those with sincere and quintessential models.
Having an independent decentralized network for an ICO can come as both a blessing and a curse, depending on the complexity of the project in question. A system built for mining operations will definitely operate differently from systems built on pre-mined tokens. Blockchain bugs can have adverse effects on the interest of both the development team and the end-users of the products and services; though the systems are built to be immutable, but program codes are created and managed by human beings, which doesn’t eliminate completely the fallibility of human logic. There have been reported cases of attacked and hacked wallet accounts, due to holes in the programming logic of some networks.
Migration fees along the blockchain network is an important criterion should a service provider seek to execute their entire ICO operation on an independent network.
In conclusion, there are currently no empirical marginal indexes that could be used to classify the relationship between successful ICO campaigns and blockchain development – this is so because many of such crowdfunding activities have succeeded being anchored to other decentralized networks. Also, projects that undertook the task of developing a system of their own still showed outstanding proficiencies during their crowd sale activities.
The early decentralized systems had the advantage of surprise, innovation, and uncertainties; this has helped genuine new generation cryptocurrencies follow the same path to discover their place in the crypto-world. However, while a blockchain platform provides end-users and investors alike with staple-confidence in the proposed crypto framework, it can also be daunting if the decentralized system isn’t efficiently managed. The underlining plot is for cryptocurrency enthusiast/entrepreneurs to take on paths that reveal potentials to drive demand and push upmarket worth after the conclusion of crowd sale activities.