The most famous internet gossip causing global panic is the unravelling of the blockchain business. In form of initial coin offering, the blockchain technology has wrapped the entire facet of the Fintech economy, hardly can anyone talk about technology without the mention of a decentralized system and how it has impacted their day to day affair.
There are over 200 altcoins presently in the crypto market, having a total market capitalization of over $239 billion USD as of the time of this writing. In just 2017 alone, 218 ICOs have emerged showing an increase of over 370% from the previous year. Neglecting the differential amount of money raised during the ICO, an estimated average of $16 million USD was realized by each ICO during their crowd sale. These statistics show how ICOs have proliferated within the last 12 months and the level of support by the crypto community to develop the idea of decentralized systems.
With Bitcoin blockchain leading the surge in the cryptocurrency market, having a market capitalization of over $136 billion USD, shows consistent growth in marginal profit and has also inspired today’s altcoins and many in the cryptocurrency community towards building new crypto undertakings. It is safe to say at this point that while this new technology is uncharted territory to most economic systems, the current level of adaptation is being explored and new use cases are developed on a constant basis to demystify this economic tool.
The blockchain is the premise for which all Initial Coin Offering and their derivatives are built upon. As internet based businesses are moving their real world assets unto the blockchain, they find it convenient to use the digitized form of their assets to leverage the blockchain possibilities to their advantage. On the other hand, exploiting these possibilities have revealed flaws and cracks within the decentralized system as many have attempted to use the network for illicit purposes.
The major benefits an Initial Coin Offer can propose are democratization of the economic system through internet based applications, and the high return on investments portrayed by most projects in terms of 2x, 3x, 5x and even 10x (multiple of invested amount).
Initial coin offerings have become the most used routes in fundraising campaigns towards building new technology based enterprises. Many entrepreneurs use this financial instrument to explore new channels of opportunities to maximize efficiency and effectively communicate their products and services to a global market without the constraints of legal prejudice or jurisdictive penalties.
However, in most cases jurisdictional purviews are quite on the antagonistic rear, as most nationalities do not permit their citizens to participate in an Initial Coin Offering that has not gone through the formal economic scrutiny by the representative legal and financial agents. While this may seem to be a drawback, it only sets back the crowd sales in those regions alone.
“Token sales” as the ICOs are usually referred to as, offer opportunities for both parties that come under the influence of a smart contract. On the proponent’s side is the rare opportunity to offer a client, an investor, a supporter or an end user, a digitized form of their asset (token) that represent the entire concept or idea they propose to accomplish – usually a task or a program (product or service) that solves a particular challenge in the finance and technology niche while leveraging the blockchain to carry out such feat. In exchange the supporter group, would offer fiat based or cryptocurrency worth commensurate to the tokens being offered. This is done speculatively with assumption that the tokens would appreciate in real world value once the project has attained its objectives.
The smart contract is a piece of program embedded in the blockchain network that ensures that both parties deliver on terms of their respective agreements.
Over the past few years, many ICOs have failed to deliver on expectations or meet the estimated benchmark(s) for their projects, hence have had to terminate the project. Some, have had a hard time rising up in the market chart, due to unfavorable conditioning of the surrounding altcoins. Many others have scammed potential investors of their funds due to the unregulated system of the crowdfunding activities.
The main bone of contention here is the absence of regulatory oversight which exposes investors to risk. The ideology of many investors revolve around the presumption that investments are risky ventures, and there is no such thing as a safe investment especially when securities are not insured.
Tokens have been mildly considered as securities by some jurisdictions and therefore because of the unregulated structure of ICO events have limited influence in such jurisdictions. Meanwhile, other jurisdictions have accepted the use of cryptocurrencies like bitcoins and as a means of transactional legal tender; hence, has encouraged the development of other crypto projects. This has in many ways given rise to a bubble effect, whereby, many projects have flooded the crypto community without an actual purpose for existence only mimicking prior projects.
Indeed, investing in token sales and their derivative cryptocurrencies are risky and have vast economic consequences, both on an individual and at the macroeconomic levels. As most projects may not have a working prototype of their products before they begin their campaign. There are currently no specific indices or benchmark used to regulate or ascertain the profitability of a particular project, except for the speculative wits of those within the cryptocurrency community, and the conceptual framework presented in the whitepaper.
Moreover, investing in cryptocurrencies and token sales can be quite profiting. There are four sets of possible scenarios to profit from token sales.
Firstly, many who bought-in and invested in the early stages of most token ventures and faithfully held their tokens till the project was able to stand on its ‘two feet’, got an ample reward for their wait once the price index for the tokens appreciated within the crypto market. As the project obtained relevance and got more support from the community, price was driven up to maintain and up flow in the value of the token.
The second set of individuals are those who buy into the presale or crowd sales of tokens and invest because of the incentives (promotional bonuses) attached. Once the tokens reached the exchange markets, they sold at cheaper prices than was obtained in the presale or crowd sales and had fair profits.
The third set involves those who are radical investors, they invest in almost all the ICO campaigns they come across whether or not they had real world backed asset or had a fancy website and a convincing whitepaper with an actual experienced development team. They gambled their way into the profiting. No doubt they must have lost a token or two, but they had been involved in too many to have missed the mark.
A final group would involve those classified as bounty hunters who accomplish promotional tasks for an ICO and are rewarded with tokens or stakes. This set of individuals rely on their particular kinds of social/media skills to earn their place in the ICO community. Tasks could be in the form of social media campaign, article writing, multilingual translations, signature campaigns on forums (e.g. on bitcointalk.org) etc.
As it can be seen from the general activity of ICOs, they do have profiting win-win scenarios. But also are counterbalanced by the very intrinsic nature of their existence – decentralized networks; as they are facilitated by unregulated procedures of fundraising and exposes investors to fraud, scammers, and many more anomalies of the token sales convention.
The bottom line for every investor who is intrigued by the blockchain technology and its derivatives is to study the project along with every documentation, and research thoroughly about the development team and the practical use case being proposed. Moreover, the more public technophiles identifying with a particular project, the more favorable the project would be. Investors should use informed decision to motivate their investments, and ensure to participate in ICOs that have juristic providence.