Mark Tencaten | Understanding terms related to cryptocurrency – III

Initial Coin Offering

An ICO is a method new blockchain firms use to acquire money for product development, marketing initiatives, R&D, infrastructure expansion, and other business opportunities. In exchange for Bitcoin or Ethereum from investors, the corporations issue their own tokens. Mark Tencaten explains that these tokens may be used to purchase valuable assets, share dividends with stakeholders, and invest in new products. Although it has the same goal as an initial public offering (IPO), it is generally referred to as an ICO and follows a completely different approach.

As per Mark Tencaten, the main distinctions between IPO and ICO are: 

For a corporation to launch an IPO, it takes years of hard labor, ample resources, merchandise with a track record, and goodwill, but an ICO may be started from scratch. Companies are required to complete all IPO documentation tasks in accordance with government authorities instructions. A company that engages in corporate misbehavior, the pump and dump of huge numbers of penny stocks, the dissemination of misleading information, the use of Ponzi schemes, or other fraudulent acts is subject to harsh penalties while conducting an initial public offering (IPO). The ICO is decentralized, has no external borders, and no designated authority is in charge of examining its functionalities. In contrast to shareholders, token holders lack ownership; therefore, blockchain corporations are not obligated to uphold their pledges.

How do initial coin offerings raise money?

According to Mark Tencaten, making a whitepaper is each blockchain firm's first step to acquiring money through an initial coin offering (ICO). It will include all relevant information about the project, including its valuation, the amount of funding needed, the number of tokens reserved by the creators, and the length of the ICO project. The document is then distributed to businesspeople in an effort to draw possible investors. Those that are sold on the business concept purchase the tokens using Bitcoin or another cryptocurrency of their preference. A smart contract is used to issue the tokens. An agreement, including the terms and conditions, will be made between the blockchain firm and the investors.

In 2013, Mastercoin raised funds in the first-ever ICO. The following year, Ethereum entered the group and finished its ICO campaign with US$ 18 million. As of April 3, 2020, the price of Ether was US$146.03, up from its launch price of US$0.30. Ether is also amongst the five most successful ICOs with the highest return on investment. Since then, every blockchain firm has embraced the idea of an initial coin offering (ICO), and is now their primary source of financial investment. The last few years have witnessed a tremendous increase in this tendency. According to sources, a staggering US$ 10 billion in investment was raised in 2017. Additionally, it increases by 10% to 15% yearly.

Benefits of ICO

·        The possibility for the hopeful projects to be given a chance to flourish with the aid of ICOS. The best illustration shared by Mark Tencaten of this can be seen in Ethereum, whose recent successes have drawn attention to reality. Additionally, it has been a perfect foundation for the growth of additional ventures.

·        Because of the excessive documentation required for the procedure, a number of projects in the centralized world are unable to complete their IPOS. This is not the situation with initial coin offerings (ICO), as blockchain projects may join them by just submitting an excellent ICO whitepaper.

·        The ICO whitepaper is a piece of material that presents issues with the project and the approach that will be taken to address them. Potential investors might decide whether they intend to invest in the venture by reading this whitepaper before making their decision.

·        Another outstanding advantage of ICOs is their capacity to build relationships between the project and the community. Any ICO founder is fully aware of the challenges they must overcome for a strong community to form.

·        It is a fact that the blockchain crowdfunding industry raised $6.8 billion in 4.5 months. It amply demonstrates the buzz around these initiatives that have the potential to achieve miracles and also the desire for them.

·        With the aid of ICO funding, developers can also get significant incentives that encourage them to go above and beyond and create more intriguing and inventive ideas.

·        Ethereum is the ideal illustration of how ICOs provide investors the chance to learn about and invest in the next great thing.