Initial Coin Offering (ICO) : new crowdfunding model

ICO - Initial Coin Offering
Initial Coin offering (ICO) also called “token crowdsale” is currently a hot topic in the blockchain community.

What is an Initial Coin Offering (ICO) ?

Basically, it’s a new form of « crowdgiving » popular in the blockchain community to finance the development of projects.
Initially ICO appeared before a specific Blockchain network deployment, the step consists for the team in charge of project to pre-mine/pre-create a fixed number of tokens to finance the development of the project.

Today the mechanism for creating tokens is completely different and the process is done on existing Blockchain protocols, the best known for that is Ethereum. Indeed, the team in charge of the project creates an amount of tokens which will then be distributed to earlier investors by a preferential conversion rate. To participate supporters send an amount of participations mainly in Bitcoin and Ethereum.

In contrast to traditional funding methods such as share issuance by acompany which concede a part of its control and dividends, Initial Coin Offering enables the company issues tokens and redistribute them tothe investors in exchange of the invested cryptocurrencies such as Bitcoins or Ethers.

What is the use of tokens?

The ICO tokens may represents various digital assets with attached financial, political or product based rights, that the community has on the project.
In case of the raised amount does not meet the minimum funds required by the company, the fund raised is returned to the investors and the ICO is deemed to be unsuccessful. However, if the funds requirements are met within the predetermined timeframe, the fund raised will be used to build the project as disclosed in the ICO documentation .

Golem Network project was one of the first biggest successes. Build on Ethereum, the project raised $8.6 million in just 29 minutes end of 2016. Golem Network is a peer-to-peer network with no central server that allows both application owners and individual users to rent the resources of other users’ machines and be paid in cryptocurrency (GNT).
More recently Tezos Protocol raised over $230 million within two days.

The main benefit is the fact that the process doesn’t necessary makes the project holders to give up their equity.

In these cases, the platforms achieved mad bet to take up this crowdsale by establishing trust and opening up the roadmap, whitepaper and team information.
This form of P2P funding is possible thanks to the technical driven innovation of the blockchain vehicle.

All in all, it’s a far cry from frauds and scams happened in some projects.
Thereon, the platform smith&crown compiled information relative to ICOs. You can take a look if you wish to go deeper into the matter. However, naturally, keep in mind that the token crowdsale have its various levels of risk and requires technical skills to understand the project.

With token crowdsale, the project holders can directly address the Blockchain supporting community and the community can given them the expected hand up so they could make the project possible.

What are the precautions?

Indeed, it’s first necessary to ascertain that the project suits the ICO process. What blockchain related projects are eligible for an ICO?
How to position your project? What is the adequate ICO for your project, appropriate business and technical architecture? What blockchain to choose, to build one? What is my cap target?
It’s also a number of strategic decisions. What counterparty rights will you offer to the supporting community? Voting rights on the project, venal value, a product, a service, a discount?

The project holders and start-ups are subject to the due diligence procedure and are mentored, guided and supported in realisation of the relevant documentation such as white paper and roadmap because only the illegible projects audited on the objective and vérifiable criteria are supported.

The reason? The blockchain community confidence, it’s build with time and experience and every acquired token represents a capital trust for on-boarded participants.