Def­i­ni­tion

INI­TIAL COIN OF­FER­ING (ICO)

Silicon Luxembourg - - CONTENTS -

THE CON­CEPT OF ICO BE­CAME VERY POP­U­LAR LATELY IN THE BLOCKCHAIN WORLD. NO ONE COULD HAVE IG­NORED THE RE­CENT HEAD­LINES IN THE NEWS OF SOME SUC­CESS­FUL ICOS HIT­TING RECORD OF FUNDRAIS­ING IN MIL­LIONS OF

USD WITHIN LESS THAN AN HOUR. SUCH EN­THU­SI­ASM EVEN STARTED TO SPREAD OVER TO THE VEN­TURE CAP­I­TAL AND STARTUP ECOSYS­TEM. AS ICOS EMERGE EV­ERY­WHERE AND SPECULATIONS ARE RIS­ING ON ITS USE (I.E. SOME BE­LIEVE THAT IT DISRUPTS THE FUNDRAIS­ING IN­DUS­TRY FOR STAR­TUPS AND MORE) LET'S GET SOME CLAR­ITY ON THIS NEW CON­CEPT BE­FORE DIV­ING INTO IT.

WHAT IS AN ICO COM­PARED TO AN IPO?

Ini­tial Coin Of­fer­ing de­rives from the more well-known acronym IPO (Ini­tial Pub­lic Of­fer­ing, the ac­tion of of­fer­ing the shares of a pri­vate com­pany to the pub­lic) and is used to des­ig­nate a fundrais­ing in cryp­tocur­rency, usu­ally for early stage blockchain projects. (i.e. de­cen­tral­ized apps).

Aside from be­ing both (ICO and IPO) fundrais­ing tools, the sim­i­lar­i­ties of both tools are very lim­ited. In­deed, as op­posed to IPOS that are highly reg­u­lated, ICOS so far are con­strained by vir­tu­ally no reg­u­la­tions. In­stead of is­su­ing shares or bonds that en­ti­tle the hold­ers of spe­cific rights, to­ken (also called coins or dig­i­tal as­sets) are is­sued against ex­ist­ing and trad­able cryp­tocur­ren­cies (e.g. Bit­coins, Ethereum). Such to­kens orig­i­nally solely give their owner the fu­ture right to con­duct trans­ac­tions on a new de­cen­tral­ized ap­pli­ca­tion (usu­ally de­tailed in a white pa­per and au­tom­a­tized through pro­to­col), whereas the funds raised are used to fi­nance the de­vel­op­ment of the project (e.g. hu­maniq, Ethereum, Gno­sis). This is why ICOS are also com­monly called crowd­sales.

WHICH USE? EASY FUND RAIS­ING BUT HIGH RISK AS­SET FOR IN­VESTORS

It is there­fore a great al­ter­na­tive fund­ing tool to ex­plore es­pe­cially for star­tups. ICOS seem to be easy to op­er­ate with lim­ited reg­u­la­tion to ob­serve and pro­vide much faster fi­nanc­ing than stan­dard bank loans or ven­ture cap­i­tal funds. It how­ever re­quires that the blockchain tech­nol­ogy is at the core of the op­er­a­tional model of the com­pany.

From an in­vest­ment point of view, it is clearly not de­signed for risk ad­verse in­vestors. In­deed, most of the time the ICO is ini­ti­ated be­fore the project is up and run­ning and thus in­vestors are fully de­pen­dent on the po­ten­tial achieve­ment and suc­cess of the project. Par­tic­i­pants of ICOS are rather highly mo­ti­vated per­sons in the sug­gested projects or spec­u­la­tors bet­ting on the in­creas­ing value of the is­sued to­ken right af­ter the ICO.

ICOS are also not saved from scams or hack­ing (e.g. DAO hack­ing scan­dal in 2016). In this con­text, a clear un­der­stand­ing of the pro­to­cols of the project, cre­den­tials of the team mem­bers and ICO or­ga­niz­ers and ac­cess to the code are some of the el­e­ments that should be an­a­lyzed with ex­tra cau­tion. It is there­fore im­por­tant to get fa­mil­iar with the ba­sics of how an

ICO works.

HOW DOES IT WORK? SOME STAN­DARD FEA­TURES • Step 1

Pre­sen­ta­tion of the project in a whitepa­per high­light­ing the pur­pose, the roadmap, in­tro­duc­tion of the team and their ex­pe­ri­ence;

• Step 2

Is­su­ing price;

• Step 3

Du­ra­tion of the crowd­sale with some caps (max­i­mum and min­i­mum of to­ken to be is­sued), dis­tri­bu­tion rules of the to­kens (date the to­ken will be avail­able, locking time (if any);

• Step 4

Mar­ket­ing and com­mu­ni­ca­tion cam­paign of the fundrais­ing via so­cial me­dia and spe­cial­ized press;

• Step 5

Col­lec­tion of funds in cryp­tocur­rency (i.e. typ­i­cally Bit­coin or Ether);

• Step 6

End of the ICO and project launch­ing.

AU­THOR: AU­DREY BAVEREL IS A CON­SUL­TANT AD­VIS­ING STAR­TUPS AND WITH A STRONG TRACK RECORD IN COR­PO­RATE FI­NANC­ING AND TAX. IN EACH IS­SUE OF SIL­I­CON MAG­A­ZINE SHE’S CLAR­I­FY­ING A CON­CEPT REL­E­VANT FOR THE IN­DUS­TRY AND YOU, THE READ­ERS.

FOR FUR­THER IN­FOR­MA­TION ON ICOS HERE ARE SOME EASY-AC­CESS WEB­SITES: SMITHANDCROWN.COM BLOCKCHAINDAILYNEWS.COM CRYPTOCOMPARE.COM COINSCHEDULE.COM

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