Thursday August 17, 2017 - 15:13:28 GMT
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Exploring The Future Of ICO Funds (Initial Coin Offerings)
Initial coin offerings (ICOs) have generated a lot of hype, particularly over the last 12 months or so. Also known as crowdsales, ICOs allow businesses to raise funds from multiple sources. Typically, when a company holds an ICO, it sells blockchain-based tokens/coins to investors who pay for the tokens using an existing cryptocurrency, such as Bitcoin or Ether. The company uses the money it receives to develop a product or service and if the product/service is successful, token holders can sell their tokens on cryptocurrency exchanges and book their profits. An ICO allows the owners of blockchain-based company to raise funds without necessarily selling a portion of the company to investors. In fact, startups are increasingly raising funds via ICOs instead of traditional venture capital investments. Below is some information on the future of ICO funds (Initial Coin Offerings).
ICOs versus Venture Capital Investments
ICOs have proved to be extremely effective in raising money. In fact, companies that issue ICOs generally raise tens of millions of dollars in minutes, literary. For instance, when Brave, a startup Internet browser company, issued its ICO in May 2017, it was able to raise nearly $40 million from 130 investors in under a minute. Brave's ICO is just one of the 40 blockchain-related projects that raised more than $1 billion in 2017 thus far. Given the impressive success of several recent ICOs, some industry experts, including Brock Pierce, the director of Blockchain Capital LLC, a venture capital firm that invests primarily in blockchain-based businesses, believe ICOs may be the future of investing. Pierce says ICOs will completely disrupt the venture capital industry. For this reason, venture capital firms are likely to issue ICOs of their own. Moreover, an ICO would help create liquidity for a venture capital firm, meaning the firm would not need to lock in investments for relatively long periods.
Because ICOs are largely unregulated, many financial experts have labeled ICOs the "wild west" of financing. Fortunately, governments across the world are implementing guidelines aimed at regulating ICOs and protecting investors. For instance, in 2014, the Monetary Authority of Singapore issued policy and guideline on the creation of digital tokens and cryptocurrencies. Similarly, the Australian government recently released a roadmap for developing blockchain standards in the country. Moreover, Switzerland has issued guidance on tokenization of Ethereum.
Most of the ICOs being issued today are not backed by products/services. Instead, investors are essentially gambling on concepts and ideas that may fail to materialize. Even worse, funding ideas/concepts creates an environment for ICO scams to thrive. It is most likely that most of the ICOs receiving investments based on ideas will not succeed. This means that, in the future, investors will likely invest in companies that offer something more tangible such as a completed product.
Initial coin offerings (ICOs) have proved to be extremely popular among investors who invest in cryptocurrency-backed projects/businesses. In fact, today ICOs are the most effective way to raising funds from a group of investors and have already overtaken venture capital investments in terms of the amount of money raised. However, the current ICO model is vulnerable to ICO scams, meanings investors may lose their money to rogue blockchain businesses. Fortunately, various countries including Australia, Switzerland and Singapore have already issued guidelines to tokenization. With proper regulation and recognition by regulatory authorities such as the SEC, mainstream businesses are likely to join the ICO frenzy in the near future.
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