Initial Coin Offerings (ICOs) have sparked massive interest as a means of raising capital for a company. By the end of March 2018, a total of $4.8 billion was raised by ICOs by companies in a range of different fields. There have been 147 Initial Coin Offerings so far this year. In just three months, that figure has outpaced the $3.8 billion raised by 210 ICOs in 2017. Investors viewed last year as a historic moment for this means of raising money. Traditional venture capital was pushed to the side last year. At the current pace, the amount of money which will be raised this year could be completely unprecedented.
Where Did They Come From
ICO’s have emerged almost overnight. The first ICO was in 2014 when the Karmashares projected raised money with its Karmacoin. 2015 was the first year in which ICO’s emerged as a fundraising method. In those days, a million-dollar raise was an exception, only reserved for the highest profile projects. Fast forward to 2018, and ICO figures continue unabated. We are only 12 weeks into 2018, yet the amount of money invested in ICOs is growing by each passing month.
What Are Tokens?
ICO’s offer an alternative to those wishing to seek funding from alternatives to angel investors and venture capital funds. Instead, ICO’s are similar to a crowdfunding enterprise, where companies can raise a significant level of capital for their enterprise by offering either a utility or a security token.
Utility tokens are offered in an ICO as part of a future access to the company’s product or services. In effect, users are buying the ability to use a service before it has been released. Just a someone might pay for a pre-order of a product that they are interested in, a utility token operates in a similar manner. When the platform come online, those who bought tokens during, or prior, to the ICO can now use these tokens to use the company’s services.
A security token is similar to equity in a company that traditional investors will be accustomed to. Companies engaged in the cryptocurrency space can use these tokens to raise capital for their idea. A security token is a broad classification that refers to any kind of tradable asset.
For many people involved in the traditional investment market, it may be a little confusing as to what is driving such a growth in ICOs. However, it cannot be denied that cryptocurrencies are now a major driving force.
A factor which is possibly creating so much interest in ICOs is the performance of early cryptocurrencies such as Bitcoin. In September 2013, the average price of one Bitcoin (1 BTC) was $135USD. Today, 1 BTC is worth approximately $8,000USD. That would mean that someone who invested in Bitcoin in 2013 has witnessed an extraordinary return on their investment.
There has also been a keen interest in the use of blockchain technology. This form of technology helped build Bitcoin, but many are now recognising its potential function in wider society. A basic explanation of blockchain technology involves a number of different computing systems, known as nodes, agreeing on the accuracy of a transaction. This removes the need for a centralised, trusted third party. Blockchain technology has the potential to revolutionize how we approach banking as well as government systems.
ICOs do not seem to be cooling down. An increasing number of companies are looking towards this method as a means of raising capital for their projects. Investors are responding. The amount of money invested in ICOs now far outweighs venture capital funds and angel investors.