ICO’s are a phenomenon that truly epitomizes the potential of the internet and modern technology.
Just a few short years ago, if you told any startup that they could potentially raise more than $30 million in 30 seconds (that is $1 million per second…), or any investor that they could see potential returns of 374505% (no, that’s not a typo) in four years, they would’ve laughed you out of the room.
But today, that’s the reality we’ve come to expect from ICO’s and the cryptocurrency market.
ICO funding grew from $96 million in 2016 to $3.2 billion as of October this year.
But where did it all begin and how did we get to a $3 billion movement in a few short years?
A brief history
The basis of crowdfunding as a form of alternative financing actually dates back to 1700’s. Jonathan Swift started the Irish Loan Funds to lend to poor tradesmen who didn’t have access to traditional financing. Small amounts were borrowed with weekly installments made without interest accruing.
In 1997, a pioneering rock band turned to fans to fund the production of one of their albums by pre-selling the finished product.
Fast forward to 2009 and we saw more than $530 million funded through modern-day crowdfunding platforms like Kickstarter.
However, in the last few years, with the advent of ICO’s, crowdfunding has risen to a whole new level.
Birth of the ICO
The first ICO started with a White Paper titled “The Second Bitcoin White Paper”.
In it, the publisher claimed that “the existing Bitcoin network can be used as a protocol layer, on top of which new currency layers with new rules can be built”, and that “the new protocol layers will provide initial funds to hire developers to build software which implements the new protocol layers.”
This is the very basis of ICO’s as we know it today.
The author was, of course, J.R. Willett, who launched the first ICO, Mastercoin (now Omni) back in 2013. The project was built on the Bitcoin Blockchain and managed to raise over $5 million.
Then, when Ethereum burst onto the scene, ICO’s got kicked up a notch. They had a very successful crowdsale back in 2014, raising over $18 million. It was the biggest ICO at that time.
Through the development of Smart Contracts and Decentralized Autonomous Organizations (DAO), the network protocol also made it much easier for other projects to launch their own digital tokens on the Ethereum Blockchain.
Soon enough the $18 million ICO of Ethereum got eclipsed by projects like Bancor and Tezos, which raised $153 million and $232 million respectively.
The biggest ICO to date is Filecoin. The project raised close to $260 million in in one month.
The success of ICO’s in 2017 is astronomical. In August it was reported funding through ICO had actually surpassed early stage Venture Capital funding.
We’ve also seen ICO’s evolve to take on more traditional markets.
Blockchain Capital became the first venture capital fund to launch an ICO for a token as a security. Before that, ICO’s were typically limited to Blockchain-based startups.
ICO’s also started to emerge in more traditional, VC backed markets. Established companies, like Unikrn, an esports betting platform, raised over $15 million through the sale of their UnikoinGold token, backed by big-time investors such as Mark Cuban.
What does the future hold?
There have been a few bumps recently in the ICO landscape, with naysayers calling it a fraud and a bubble, including the chairman and CEO of JP Morgan, Jamie Dimon.
There have also been scares from legislative bodies such as the SEC in the US that wants to regulate the industry under the same umbrella as traditional securities, which would put a lot of unnecessary regulatory burdens on young startups.
The Chinese government flat-out banned ICO’s, sending shockwaves through the cryptocurrency industry and causing investors to panic as the price of Bitcoin briefly took a dip.
However, these challenges turned out to be teething problems, more than anything else.
The Chinese ban is likely to be just temporary, the price of Bitcoin has more than recovered, Blockchain projects are working around restrictive regulations, and most people realized that Dimon doesn’t really know anything about cryptocurrencies.
ICO’s are a flexible fundraising instrument that not only makes it faster to raise capital, but also cheaper by cutting out the middleman and puts profits back into the pockets of the everyday public, instead of the large financial institutions.
So what does the future hold? ICO’s are the future of financing and it’s highly unlikely for this multi-billion dollar revolution to disappear anytime soon.