Although the concept can also be executed through mail-order subscriptions, benefit events, and other methods, it is now often performed via Internet-mediated registries. This modern crowdfunding model is generally based on three types of actors: the project initiator who proposes the idea and/or project to be funded, individuals or groups who support the idea, and a moderating organization (the “platform”) that brings the parties together to launch the idea.“ -Source: Wikipedia.com”
So as you can see, the underlying goal of an ICO is not new. The way it is setup though leaves a lot of room for debate. That is, is the ICO indeed just a fund raising technique that only entitles users to a royalty in the service they provide? or does the coin reflect ownership in the project? We’ll discuss that in the issues surrounding ICOs in the following chapters and also cover off what to look for in an ICO.
ICOs can have different structures. The way the coins are released, the way funds are accepted, what the coin will represent, will all vary from ICO to ICO. When the founding team is creating a new digital coin they are creating their very own economy, an ecosystem that will thrive on that currency. You can almost think of the company as a nation. Where the coin now acts as the nations national currency. Any service or product exchanged in that nation, will be paid for by the national currency. You could just hold onto the currency, or you could exchange it with another currency.
There are clear benefits to being on either end of an ICO.
For the founding team, it offers a win-win. Other funding channels can be filled with roadblocks, headaches, bureaucracy, and the constant worry about reporting to investors. Other funding methods also mean a whole lot of regulatory requirements that can otherwise be a burden on a small startup- especially one that doesn’t have funding in the first place.
The benefits of an ICO for the found team include:
- Speed and efficiency- fast to setup, while receiving funds happens very quickly, potential to raise millions in hours
- Large pool of investors
- Low levels bureaucracy
- Flexibility on how to structure
- Use of blockchain, decentralization, and smart contracts
An ICO can be beneficial for both the business and the participant
For the investor – they get to benefit by holding a token that allows them to pay for the services of the project.
The token also holds value in the wider cryptocurrency world. It may also be traded on various exchanges. A such through arbitrage and speculation the digital coins may generate gains for the investor who prefers to trade.
Holding onto tokens over long term could also be beneficial. This is because when the founding project hits success, is adopted, and is functioning as a profitable endeavor, the token that is tied to it also increases in value. If the founding company does grow and flourish, the token value should also increase.If the project flops though, so does the value of the coin.
There is also a chance that the coin could be used to power other projects. Similar to Bitcoin and Ethereum. As the blockchain industry develops, more cryptocurrencies will be the ‘go-to’ currencies. Like Bitcoin, we will see more and more digital currencies being used for everyday transactions and purchases. The coin that just got launched could be that next cryptocurrency to achieve this.
Okay, so that’s the low down on what an ICO is and what are some of the benefits. These benefits reflect the positive side to ICOs and cryptocurrencies.
We’ll break it down even further in the next chapter and show you how an ICO works and how you can personally benefit from one. However. There are issues and negatives that you need to extremely careful about. We’ll break these down too so stay tuned as we show you what to look for.