What are ICO’s And Why They Are Disruptive.
Trying to look at cryptocurrencies from a conventional business background might drive you nuts. Private companies are raising staggering sums without working prototypes or revenues to show prospective investors. If a brick-and-mortar business was pulling off this kind of black magic, the world would be tilting on its axis.
AN INTRODUCTION TO THE MESSY WORLD OF ICO’S
1 hour, 168 million dollars. That’s what Filecoin, a new cryptocurrency, raised Friday during their ICO. Filecoin was so red hot the company had to suspend the ICO after the influx of cash crashed their servers. But it’s not all smooth sailing and profit for many startup cryptocurrencies.
And it’s not just money coming in, but also money going out. Some crypto investors are making a lot of money investing in early stage coins. In fact, that’s the premise behind our own Coinist Insiders Network, a premium, members only, data product that examines early stage coins with a high probability for ROI success. The goal is to identify these coins before there is any major retail hype behind them.
Initial coin offerings, or ICO’s, are all the rage these days. The basic concept of an ICO is similar to the IPO of a stock. Investors into the cryptocurrency get in on the ground floor, grabbing coins that could be worth significantly more in the future. Bitcoin is pushing $4000 a coin. Ethereum rocketed up from single digits to $400 this year at its peak. There’s easy money to be made buying up coins when they cost cents now and could be worth hundreds someday. These are just some of the reasons that both project founders and crypto enthusiast flock to our site each month to check out what’s new on our list of upcoming ICOs.
DEVELOPERS PUT ON THEIR COWBOY HATS
But cryptocurrency is still very much in the wild wild west days; drama between coin developers and hacks of major exchanges are common. Last month, Bithumb, a Korean-based exchange hosting around 10% of the global bitcoin trade, was hacked. An undetermined amount of money was stolen, as well as the personal information of 30,000 customers. Things move fast in the crypto world, and that was evident a few weeks ago when the SEC reached a decision in the DAO ICO case.
Many people find the lack of regulation around ICOs unsafe and dangerous, but others consider them a natural leap forward and technological advance. The SEC’s ruling offered a clue as to how it might feel long term. Straight from the press release is the SEC’s conclusion that: “tokens offered and sold by a “virtual” organization known as “The DAO” were securities and therefore subject to the federal securities laws.” As well, exchanges trading in these coins must register. SEC Chairman Jay Clayton gave a thoroughly vague non-answer with the press statement, saying that: “We seek to foster innovative and beneficial ways to raise capital, while ensuring – first and foremost – that investors and our markets are protected.” Let’s break down the implications of this, and why ICOs have such potential for disruption.
MILLIONS RAISED IN LESS TIME THAN IT TAKES MOST PEOPLE TO COMMUTE TO WORK
On a technical level, most ICOs simply mimic the code of previous ICOs. Gnosis, another up and coming coin, used a Dutch auction to for its ICO, reaching their goal of 250K Ethereum (current market value of around 7.5M) in less than 15 minutes, although this isn’t something most companies have imitated. Still, the staggering amounts of cash these companies are raising in the time it takes most people to commute makes ICOs seem like a no-brainer for companies. But it’s not that simple.
There’s a reason most ICOs copy code of previous ICOs; it’s complex and takes time to do properly. Alejandro Gómez de la Cruz, a blockchain lawyer, estimated in an interview with CoinIdol that an ICO takes three to five months. That’s three to five months of fundraising, time away from working on the actual coin. Setting up the technology and making it user friendly are very different things. Not to mention getting it working on multiple devices; I’ve personally had the Coinbase app freeze on me when I was trying to sell during a dip. It’s frustrating to say the least.
Blockchains such as Hukaii are developed to make the technical side of launching a token much easier. Creating a token on the Hukaii blockchain can take as little as 5 minutes for someone who has no coding experience. Using the same token, a user could launch an ICO on Hukaii within 5 minutes.
UNKNOWN REGULATION: IT’S FUN UNTIL IT’S NOT FUN
As we’ve touched on, cryptocurrencies are so new to the mainstream world that there’s almost a complete lack of regulation. Will all tokens be considered securities? Not necessarily, because of technical differences. Many have different features (Ethereum’s so-called “smart contracts” are one of its main draws). In the same interview, Alejandro proposed a few different ideas that have been tossed out to control ICOs.
Vesting, or limiting the amount of funds the developers can withdraw over time, could theoretically help prevent shady coins from taking investor’s money and disappearing. And this isn’t a possibility that should be ignored. The digital nature of a cryptocurrency makes it significantly easier to rob than a traditional bank.
ICO INVESTMENT: YOUR APPETITE FOR REWARD NEEDS TO BE MATCHED BY YOUR APPETITE FOR RISK
Trying to look at cryptocurrencies from a conventional business background might drive you nuts. Private companies are raising staggering sums without working prototypes or revenues to show prospective investors. If a brick-and-mortar business was pulling off this kind of black magic, the world would be tilting on its axis. Many investors aren’t doing due diligence either; just trying frantically to catch the next Bitcoin or Ethereum. In ten years, it’s a fair bet most of the coins won’t exist. But when you snag an up-and-coming coin before it gets huge, it’s like catching lighting in a bottle.
It’s important to understand the facets of the crpyo world that allow ICOs to be so disruptive. There’s no regulation, huge amounts of liquidity, and anonymity. The last aspect is critical for users of the “dark web.” Many people first learned of Bitcoin when the Silk Road, the online black market for everything from drugs to murder, went down. Because ICO’s and crypto are still unregulated, it’s hard for a currency to comply with the laws even if they want to. What’s legal today could be illegal tomorrow. And many currencies have taken specific actions to avoid being labeled a “security” – a thread of anti-government sentiment stills runs through this community. The ability of cryptocurrency to circumvent conventional banks and governments is to many, the most important feature.
ICO’S AND THE DEMOCRATIZATION OF FUNDING IDEAS
We’ve touched on the immense liquidity of the crypto markets, but Steven Hopkins described them in a CoinDesk article as “a large investment pool just waiting for something to buy.” Those who bought $100 worth of Bitcoin in 2010 now have 75 million dollars. That’s an extreme example. But good luck finding the kinds of returns a skilled trader can amass in crypto, in the traditional stock market. Even if investors don’t buy into a coin long term, there’s easy money to be made buying the dips and picking the coins that will explode. The risks are real, but so are the rewards. Lots of people are making lots money quick, and despite its recent assent to the mainstream, cryptocurrencies are still very much under the radar and ripe for exploitation. And because cryptocurrency can be moved so rapidly, coins can blow up in days or hours. If a coin sucks, you can dump it and move on easily, which isn’t the case with, say, locking up your money in a hedge fund. ICOs are a potential game-changer to the crypto world, and will undoubtedly play a role in things to come.
If you’re interested in seeing what types of crypto projects are on the market right now head over to our ICO calendar.
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