Blockwatch: Demystifying the ICO
We discuss Initial Coin Offerings, or ICOs, and the impact they're having on the blockchain and cryptocurrency world. Read on for more!
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Welcome to the first installment of ‘Blockwatch,’ my semi-regular observations on the world of Blockchain related events, news and projects.
Even if you aren’t sure what Blockchain is, how it works, or why it’s important, you might have recently encountered a three letter acronym with increasing regularity. An ICO, or ‘initial coin offering’ has gained popularity in the world of projects looking to raise money. To some, they are a trend that will quickly fade. To others, they are a skeptical way of raising money with little recourse for due diligence or responsibility. And to others, they are a groundbreaking way of investing (however you want to interpret that word) in an idea you believe in. If you are interested in analyzing the worth, value and reliability of any ICOs you encounter, then I recommend the following links.
- What actually is an ICO?
- How to evaluate an ICO
- Cryptoassets: Evaluation & Due Diligence framework
- Three common misconceptions about ICO law
And it would be remiss of me to not mention some of the biggest ICO related news of the week, that of China making ICOs illegal, causing the value of Blockchain and Ethereum to tumble. Cryptocurrencies have been through similar upsets before, but this is an upset for a growing semi-constructive usage of blockchain technology.
Running an ICO Campaign
As an ICO is new territory, what constitutes a ‘good campaign’ is yet to be defined, and as the trend passes to more mainstream projects and audiences, best practices for running a fund raising campaign will develop. In many ways, you can think of an ICO a little like crowdfunding, as the competition grows for investment, the standards projects need to meet will rise, and the services and platforms to help will also increase. Unsurprisingly these are already emerging, I myself have written press releases for three ICOs in the past month and met a company working on a platform for people to run ICOs, it’s in a private beta, but has already helped campaigns. On the investor side, there are platforms for researching and managing your investments, such as TokenMarket.
The Costs of an ICO
Many are dazzled by the dizzying amounts an ICO can raise and forget about the inherent costs in fundraising, such as marketing, PR, legal frameworks, and business setup. Some have claimed to handle all these tasks on minimal budgets, but realistically you should factor in at least $10,000, or roughly 3-5% of the funds you raise.
Post Long Term Strategy
There are many positives in opting for an ICO instead of more ‘traditional’ funding methods such as IPOs or VC funding rounds, but take time to consider how they fit into your long term plans. Should you phase your ICO into several smaller rounds, instead of one large round that you then burn through quickly. Will your ICO fail, and if so, can you still accomplish your ideas? As ICOs often involve raising pre-investment in a ‘token’ or ‘currency’, there may not be a complete failure (as compared to kickstarting for a physical product for example) but you may still attract less interest than you hoped and the project may not be worth your time.
And that’s Blockwatch for this week, so you again soon!
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