Business FinanceICO: DOES IT REALLY MAKE FUNDING EASIER? By Yatin KumarPosted on March 22, 2018 0 The cryptocurrency world has been associated with some terms which have more or less become popular over the last five years. It is hard to find an individual with no knowledge of “blockchain” or “Bitcoin”. But recently, one term has been gaining lots of attention: ICO. Also known as Initial Coin Offerings, ICOs have helped blockchain start-ups raise over 1.3 billion dollars. Before we go into details, it is important we have a good understanding of what an ICO is all about.THE ORIGIN OF ICOIn the real world, funds are secured by meeting investors and venture capitalists which brings about a shared equity between them. This was against the initial plan these companies had in mind. The only way they could achieve this was to go public which is achieved by holding an Initial public offering (IPO).An IPO involves a decision by a private company to put up its private shares up for sale, giving the go ahead to anyone anywhere to buy the shares. People then thought of applying this concept to the blockchain environment. This was the idea behind the concept of ICOs.ICO gets their inspiration from standard IPOs but with three major differences. First, there lacks a red tape like most IPOs have. Second, is the decentralization of ICO with no central authority. Lastly, ICOs were not regulated in contrast to IPOs which was highly subject to regulation. Also, blockchain based companies faced some problems when it came to ICOs because, in adopting the IPO concept, there were returns from investments.The easiest way to understand it is that it consists of crowdfunding on top of a blockchain. Investors buy units of digital currency which forms an integral part of the application the startup wants to build, as a result, the application will be popularized and then, there will be a demand for tokens which finally leads to an increased value.A very good number of ICOs are based on Ethereum which can also function as “smart contracts”. The problem here is that, lots of investors all over the globe aspire to get in, to be a stakeholder but not all will achieve its goal; some are getting rich with this medium while others are not.All Investments with great returns involves risks i.e. buying cryptocurrency. ICOs are riskier.STEPS BEHIND AN ICOMake a good first impression, hype and interest. An announcement is made by developers with the intention of embarking on the projectCreation of a white paper written in an academic manner by the developers, which highlights their project and the various features that makes it enticing. To entice potential investors, the paper must be strictly informational and at least 2500 words in length.Project endorsement by prominent members in the blockchain community. This is equally important as it gives the project some credibility.Token creation, which will eventually be substituted for Bitcoin or ETH. Developers will also see the need to limit the number and amount charged for each token. This links to the law of demand and supply, in that, a cap must be set on the number of tokens, if not, an automatic increase in demand will happen. Some are even giving away free tokens as a method of marketing.Picking a suitable time for developers in which they’ll hold their ICO.BENEFITS OF ICOCommunity buildingIt helps project creators build a community around their projects. The members of this community can influence the direction of the projectGives incentives for innovationThe recent success of various ICOs has given various developers incentives to innovate and develop more projects Project ExposureProject exposure is made possible by the hype surrounding it. The more the exposure, the more people are aware of the project, which subsequently increases the number of potential investors.Gives Opportunities for promising projectsICO made possible the great accomplishments of Ethereum; it has not only made them the second most powerful cryptocurrency in the world but has also assisted them in creating their projects by providing platforms for DAPP creators. Most programs have their futures built on this platform.No need for paperworkRaising funds through IPO requires a lot of paperwork from project developers; they don’t possess the necessary documentation required to collect funds for their project. Some are even caught in the red tape and do not get executed; For an ICO, all you need is a white paper that contains all details of your project. From this, interested investors can decide to invest in the project.Early access to potentially valuable tokensICOs make it possible for investors to invest in valuable tokens coupled with a potential for dirt cheapWEAKNESSES OF ICONetwork CongestionICO requires a lot of activities that could cause a huge strain on the blockchain. For example, When 100 million dollars was raised during the Status ICO, there was congestion in the network that resulted in failed transactions for people who wanted to invest in it.Attracts scammersScammers flood ICOs due to the little paperwork involved in it. They create a bogus white paper and can often milk away a lot of money. Some developers often try to make their projects more appealing that they omit key details from their white paper. This is also wrong and would definitely result in absolute disaster as well as people having a perceived loss of faith in blockchain technologyGovernment InterventionDue to the high rate of unregulated money and the increased number of scams involved in ICOs, Governments may decide to start regulating the industry. This could result in the death of cryptocurrencies because the main idea behind cryptocurrency is its decentralization and freedom from government control.It is based on pure speculationThe idea on which a project is built is the major factor behind the pull of investors. There is no guarantee the project is going to be a success. Developers might not even finish the commenced projects and there is a possibility of hacks and attacks which will result in ruined projects.Storing the tokensTokens made in Ethereum can be stored easily but those outside it might result in complications and refuses to store.CONCLUSIONWe can conclude here that the Initial coin Offering (ICO) is still in its infant stage. There is a chance of more progress and innovations in the future with rapid progress in blockchain development.There is also a possibility that the government regulates ICO and the network itself It is very important to note the risks involved and only those who have a good knowledge of the cryptomarket should invest in it.