Initial Coin Offerings have long been among the most revered and interesting aspects of the growing cryptocurrency markets and blockchain community.
As technology surrounding the decentralized distributed ledger system became more mainstream and advanced, it became necessary for companies to reach out and find new ways to fund the projects which could hopefully change and revolutionize the financial systems in which they seek to operate.
Initially, the system was simple. Companies who wanted to raise money either opened up to the public with an Initial Public Offering (IPO) or reached out secretly to venture capitalists with deep pockets who would help to provide the startup capital for their project. This system, however, seemed to work somewhat counterintuitively compared to the original decentralized and public nature of cryptocurrency and blockchain tech.
Additionally, the biggest funding runs are consistently going to come from reaching out to a significant number of public investors who might be interested in the product (and profits) created by the venture.
But there are palpable benefits to the ICO, or Initial Coin Offering, system. An ICO occurs when a crypto startup creates a cryptocurrency and sells it in order to both offer investors a share in the company being created. Ideally, the success of the project corresponds with rising value in the coin being distributed. When this increase happens, investors are incentivized and the company is given more money with which to run their organization.
Some experts even argue that there are clear, major advantages to the Initial Coin Offering, especially when compared to the IPO framework employed by thousands of companies in the traditional sector every year.
One major benefit to using the ICO system is that it allows companies to avoid some of the more complicated regulatory steps required before offering an IPO in the traditional fiat sector.
An IPO requires a startup company to win the approval of the government through “government verification,” which requires some companies to begin preparing for an IPO even years in advance before they actually release their fundraising method to the world.
Dealing with the SEC, the IRS, and a host of additional confusing governmental agencies is just par the course for companies using the traditional IPO fundraising process to secure money for their startup project. But if a company on the blockchain is simply creating a token to secure their funds, the amount of clear regulatory actors with which interaction is mandatory is drastically reduced.
The lack of burdensome regulatory issues regarding ICOs may be one reason that the low-cost fundraising projects have taken over the blockchain industry, far eclipsing the value of contributions from traditional venture capitalists, which had previously taken lead on funding projects on the blockchain.
The Wild West Of Fundraising
But the lack of substantive regulation in many parts of the new ICO markets has created its own set of problems. For the most part, the ICO market is saturated with scams and abuse on the part of nefarious groups and companies. ICOs often appear and then never come out with a substantive project. Even more projects fail to raise any money at all, oversaturating the crypto space with advertisement and excitement on a project that would never actualize.
But experts also point out that this issue is also significant in non-ICO markets. Blockchain is simply more above-board in the dirty, unfair tricks played by some companies because the market is unregulated by many governmental entities who would normally check the power of companies in the traditional financial markets. Put simply, criminals on the blockchain fear regulation far less than criminals in the traditional financial market.
But this is quickly changing. Governments all over the world are working to regulate the crypto markets following the exposure and mass public interest of major scams on the blockchain involving Initial Coin Offerings. Moving forward, it is becoming even more difficult than ever for financial crimes to be simply “let go” by regulators on the blockchain.
Real Use Cases
One major advantage that experts think the ICO market has over the traditional IPO method of raising funds is `the prevalence of actualized products and real use cases on the growing network of the crypto space. Decentralized governance is possible using an efficient ICO token ecosystem, and this governance process could be the key to keeping companies more accountable.
Decentralized governance allows companies to coordinate between hundreds of different groups of people, distributing voting and decision-power across these groups and making the entire system more efficient. To add to the efficiency of the ICO system, the creation and innovation of smart contracts has made it easier than ever for companies to integrate the opinions and expertise of their investors into the overall business success of their project.