Leading venture capitalists have turned their gaze to innovations coming arising from the bitcoin community. This article gives focus to ico initial coin offering. Sometimes they are referred to as token sales. This fundraising phenomenon has been fueled by the exploitation of the blockchain technology crypto-investors, entrepreneurs and many other interested parties. ICOs can be good or bad, depending on the circumstances. They present both opportunities and threats to the conventional venture capitalist model.
Understanding more about ICO
So how does an ICO work?
New cryptocurrencies are created on protocols such as the open ledger, Ethereum or Counterparty. Their value is determined by their startup teams who gauge the networks worth at its present stage. The price dynamics are also determined by the demand or supply in the market. Their value is arrived at through a network of participants rather than an overbearing central government.
How it grew
Venture capitalists who once shied away from ICOs are paying closer attention. For one, the profit motive is a major driver. Investors in cryptocurrencies have seen increased returns ever since 2016. Blockchain startups such as NEM and Moreno have witness’s 2000% value increases. For instance, the cryptocurrency from the Ethereum platform saw a double in value during March 2017. This arose when its investors doubled their holdings. After buying the currency, you can hold onto it and wait for it to rise or cash out. Just have in mind that banking on market volatility can go either way.
Venture capitalists are also attracted to ICOs for their cryptocurrency liquidity. It’s beginning to seem more feasible investing in unicorn startups than waiting for long IPO acquisitions. Investors will be able to see quick gains and convert their cryptocurrency profits into Ether or Bitcoins, whatever the exchanges that carry them.
The biggest worry for traditional investors is the uncertainties revolving around regulation, the high valuations and what they consider over-capitalization. Being unable to exhibit some degree of control on its financial strategy or operations, impracticability for business use, are some of the concerns. And just like any other monetary industry, it has had its fair share of pump, scams and Ponzi schemes. A great deal of the criminal activity has now migrated to self-organized and crowdsourced due diligence operators.
ICOs have built a reputation as a discreet form of financing. There are many governmental bodies and securities agencies that have them under investigation. Unfortunately, most ICOs are unable to offer equity when they start out. Instead, they offer generous discounts on their cryptocurrencies before they are introduced at the exchanges. This attribute disqualifies them from being classified as securities. This means they do not fall within the legal framework.
In addition, the global instruments are not regulated or controlled by any central bank. Anyone with the resources can invest in them. Transactions take place completely anonymously. This makes it impossible to trace instances of money laundering or tax evasion. There are some companies today trying to work on this aspect so it can be more acceptable to governments across the globe.
Today, a popular consensus has it that blockchain startups are carrying out an ICOs as a win-win. This enables you to raise funds without pressure from equity stakeholders.