Since the appearance of Bitcoin, the overall interest in decentralized technologies has grown exponentially. The possibilities of what these innovative systems can do for humanity have only just begun to be explored in-depth. With a market capitalization of over $45 billion at the time of the writing, Bitcoin remains the most valuable cryptocurrency, with the highest adoption rate.
However, the rise and development of cryptocurrencies have brought a few new champions for the growing crypto-family of public Blockchains - especially Ethereum (ETH).
Ethereum, which appeared almost three years ago, thanks to a very successful crowdfunding, has since experienced astronomical gains. These gains came from an impressive growth in adoption from developers, institutions, as well as from adoption from some of the largest companies in the world - BP, Toyota, Intel, Microsoft, and many other.
The core appeal of generalized public Blockchains like Ethereum cannot be called a technical attraction strictly, but more of a “socio-technical.” The most disruptive aspect that Ethereum brought so far has been the rapid adoption of “tokenized assets” being created on the Ethereum public Blockchain to create incentivized platforms; where the owners of the token utilize that asset to interact with other participants and the platform itself.
The incentives for this type of tokens have many layers. Although the initial appeal of these tokens is technical: the real benefits of tokens come from the social impact they can have on the creation of new businesses, and the ability to raise funds in a borderless, global manner, without having to ask permission.
One of the main advantages of Ethereum is that it enables the user to create its own token. A token typically represents the value, a sort of digital asset (dasset). The Ethereum developers decided to standardize this entire process, and so the ERC20 ‘Token Standard’ was made. This templated-contract standardization contains a series of programming functions that enables the issuance, distribution, and control of the digital assets in a formalized, standardized manner.
A token standard also enables easier interoperability between DApps (decentralized applications built on the Ethereum public Blockchain) and the tokens created by the programmers.
Many developers have chosen Ethereum as their platform of choice for kickstarting new projects; at the center of this trend, we have ICO, which stands for “Initial Coin Offering” (there are other names in use as well, but this one is the most popular).
ICOs are basically a fundraising mechanism that allows a person/investor to get a certain token in exchange for another popular digital currency such as Bitcoin or Ether. Typically, ICOs on the Ethereum network issue ERC20-compatible tokens to its investors via smart contracts (preventing the organization/individual holding the ICO from making more tokens than it was originally specified in the initial contract). This procedure enables developers to take advantage of the security provided by the Ethereum protocols, minus all the additional technical complexity. Without having to worry much about security (ensuring that the initial token contract is secure remains, of course, a top priority), developers can devote their time to the application layer; creating a more refined user experience to increase the adoption of their platform/project.
It is also required that each new team that plans to start a fundraising via an ICO presents a ‘whitepaper’: a document explaining in detail what would be a key advantage of the future company and platform, as well as describing in detail the technology behind the proposal itself.
The different formats in which an individual or organization can hold an ICO crowdsale is always evolving, but it's important to find a fair methodology that ensures optimal token distribution and doesn’t create a quick cash exit, which could leave crowdsale participants burned.
Although the mechanics of ICOs have been in use for a few years now, the name and label for initial coin offering events have only gained some funds recently. And the ICO market has really hit an extreme growth trajectory.
For many Blockchain startups ICOs are a win-win — they enable them to gather funds without having key stakeholders breathing down their necks on spending, or setting priority on financial returns over the general well-being of the project or service itself. And many in the Blockchain community feel that ICOs are a long-awaited solution for non-profit startups that are looking to build open-source software in order to raise capital. Non-profits typically hold about 10 to 20 percent of the total digital currency they issue; as Ethereum did in their ICO in 2014, with 20 percent going to the development fund and the rest going to the Ethereum Foundation. This move also ensures that they have a strong interest in building more value, as well as having solid reserves which can be used for growth in the future. As of June 2017, the market capitalization of the Ether token was more than $31 billion.
We’ve seen many high-profile ICOs in the past. With the companies such as Storj, which raised $30 million for their decentralized cloud storage platform; Brave who raised a stunning $34 million in roughly 30 seconds; Aragon who raised approximately $25 million in about 20 minutes; and Gnosis, the first company that used the Reverse Dutch Auction, who raised $12 million in about 12 minutes.
But, we also cannot forget most recently, Bancor, who raised incredible $140 million in just a few hours.
If those figures seem surprising to you, you’re not the only one. But, no one can say with certainty is this a proper value of these cryptocurrencies. This is the first time in history people were able given the ability to raise from a global audience, almost instantly. Maybe these numbers are only a small portion of what’s to come next? Time will tell. Those interested in new ICOs on the market more info is available here.
Share your experiences with ICOs in the comments. We would love to hear from you.