With the explosion of cryptocurrencies, many investors are curious about the process that brings these digital assets into the markets. The ICO, or Initial Coin Offering, became one of the most popular processes by which new cryptocurrency projects can garner users.
|ICO Name||Dates||Vetted by Bitcoin Chaser*|
|March 1st, 2017|
|February 28th, 2017|
|March 25th, 2017|
|March 1st, 2017|
|February 28th, 2017|
*Bitcoin Chaser’s vetting mechanism is still under development. We do not take responsibility for any investments done on the basis of our vetting mechanism. We are looking to improve our mechanism all the time.
Nevertheless, this process and the concepts that underpin it, are not particularly well defined. In an effort to clarify what an ICO is, how it works and how investors can take advantage of it, Bitcoin Chaser took on the task of defining it and putting all the relevant information together in this ICO hub. This page contains everything you need to know to understand how initial coin offerings work, as well as all the in-depth information regarding their dynamics, where to find them and what to do with them. Our staff will be working diligently to bring you the latest ICOs right here to this ICO hub, with all the information possible about every new project.
What is an ICO?
A simple Google search for the term ICO, may lead anyone to believe that it is an image file format for icons that Windows uses. That is not the type of ICO cryptocurrency enthusiasts talk about. In the world of altcoins or cryptocurrency, an ICO is simply an Initial Coin Offering, which is a term borrowed from finance and upgraded to conceptualize the initial sale of cryptocurrency or blockchain powered tokens.
There are different types of ICOs. Some may resemble Crowdfunding campaigns, and others may resemble stock exchange style IPOs. However, an ICO is unique in the mechanisms it uses to reach the market, and the nature of what it offers. There are a few critical characteristics that define the ICO. The following is a short list of these characteristics:
- An ICO sells participation in an economy, project or decentralized autonomous organization (DAO, which is an organization that is governed by smart contracts and has no central authority).
- Generally, coin ICOs sell participation in an economy while token ICOs sell a right of ownership or royalties in a project, or DAO.
- Owning tokens for royalties or dividends may or may not entail the right to a vote on the direction of the project or DAO. That depends on the way the initial coin offering is structured.
- Most ICOs depend on a pre-mined digital asset, which is basically ‘minting’ a certain amount of coins or tokens before the sale – which contrasts with traditional cryptocurrencies like bitcoin or Litecoin.
- The value of the initial coin offering – not the price of the coins or tokens – is defined by the underlying benefit that an economy, a project or a DAO it is enabling.
- ICO prices are generally discounted from expected market prices, and are determined by the creators of the economy, project or DAO.
- ICOs can have multiple funding rounds leading to the launch of the economy, project or DAO, with each round making the coins or tokens it offers more expensive until the release date.
- ICOs are over once the coin or token is released for everyone else to buy at market price.
“The stock market is filled with people who know the price of everything, but the value of nothing” – Phillip Fisher
ICO vs IPO
Those who are familiar with IPOs – Initial Public Offerings – will see many similarities between the ICO and the IPO. Both processes are different nonetheless, but comparing them will help readers understand how an initial coin offering works. In order to go ahead with the comparison, let’s define IPO first.
According to Investopedia, an IPO is “the first time that a stock of a private company is offered to the public”. Furthermore, IPOs are “often issued by smaller, younger companies seeking capital to expand, but they can also be done by large privately owned companies looking to become publicly traded”.
|Private company issues shares to be sold on a given stock exchange.||Creators sell a stake in their project, economy or DAO.|
|The company keeps on running through a classic corporate structure.||The project, economy or DAO runs according to how it was programmed. Many are underpinned by purely democratic principles. Classic corporate structures are rare.|
|Decision making power is centralized (CEO, board of directors).||Decision making is decentralized in most cases (unless it is a project like Lisk).|
|Financial data must be released according to stock exchange regulation.||Financial data is either public (blockchain access) or its disclosure is subject to guidelines that investors agreed to.|
|CEO/Board decides whether to pay dividends to investors or not.||Some give their investors dividends and some don’t. Depends on the project guidelines.|
|Companies must pay taxes and stock holders must declare and pay capital gains tax.||Token or cryptocurrency holders pay capital gains tax. The project, economy or DAO is not necessarily subject to direct taxation.|
|Stock sales through an IPO are usually done in a single round. Legal and financial experts come together to determine the conditions, price and offer brokerage to sell stock to the public (lots of intermediaries).||Token or cryptocurrency sale is direct and often done in multiple rounds. Few intermediaries are necessary (in some cases, cryptocurrency exchanges act as intermediaries). In some cases, no intermediaries are necessary. Every investor reads the respective white paper and decides whether to invest.|
Why do ICO’s Exist?
After understanding what an ICO is and how it works, some may wonder why they exist at all. They exist mainly to raise funds, but also to jump-start the sale of the service that the creators want to market, or to jump start the use of a new cryptocurrency. Initial coin offerings help blur the line between investment and consumption, because most of the times, the investor becomes a consumer of the service that the ICO offers.
On the other hand, it is the best way to get people acquainted with a blockchain project. Users can then take their tokens or cryptocurrency and use them within the eco-system that the blockchain project created. Often times, the initial coin offering allows people to buy tokens or cryptocurrency at a discount, but this is not always true. The price of the token or cryptocurrency is governed by pure demand and supply once it is released. Prices may drop below initial coin offering levels.
Many ICOs work indeed as pump and dump schemes. Certain people create a lot of hype around a given altcoin or token that is about to launch, they buy it while it is cheap and then let the hype carry the prices over to a point at which they sell their stake suddenly. This can generate huge crashes, wiping out considerable amounts of capital in the process. Furthermore, there are scammers that disguise their scams as an ICO in order to simply take people’s money.
There is no ironclad vetting mechanism out there, nor there is any regulatory body taking care of the interests of investors. This doesn’t mean that every ICO is a pump and dump scheme or a scam. Bitcoin Chaser Therefore decided to build its own vetting mechanism in order to help members of the community understand ICOs better. Although our vetting mechanisms are still in their infancy and will require a lot of upgrades, we have taken the initiative in order to keep investors informed. Under no circumstance is our vetting mechanism ironclad, which means investors should not rely on it solely to make any investment decision. Bitcoin Chaser will not be responsible for the outcomes of any of their investments.
Our vetting mechanism includes 2 steps. The first step is an interview with the creators of the ICO in which our analysts ask questions to convey to the public what the ICO is about. The second step is an analysis card based on the economic incentives, payment schemes and other such issues that our analysts raise directly with the managers of the ICO. Hopefully this 2 step process will grow to include some technical audits and other necessary steps that will help investors further.
What is the relationship between Crowdfunding and an ICO?
Some investors may shy away from ICOs as much as they shy away from crowdfunding efforts. This is due to the similarities between both of the mechanisms in terms of the risk. Nevertheless, crowdfunding of projects on sites like Kickstarter may not be taken to be as risky as an ICO. Yet there are a few other similarities between crowdfunding and initial coin offerings. In essence, an ICO is the crowdfunding tool of the blockchain world. The aim basically is to get investors to fund the development of a given blockchain project. In order to do that, they are offered a piece of the pie which is also the product of the blockchain. Just like with crowdfunding, which often offers investors a unit of whichever product that company seeks to produce, an ICO offers tokens or currency for the new blockchain project to its investors.
This is exactly where the similarities between crowdfunding and ICOs end. It is important to understand that most crowdfunded projects are centralized, in the sense that funds flow from the investor to the owner, but the owner keeps control over the project. In most cases an initial coin offering has funds flowing from investors to blockchain project developers, while at the same time tokens or cryptocurrency flow back to the investors in exchange. This almost always guarantees loss of control by the developers in favor of the investors, while making the investor an active stakeholder of the project to a certain degree.
Why wasn’t Bitcoin Launched through an ICO?
There are many people who would regard the advent of bitcoin as a process that did not follow any of the aforementioned characteristics of an ICO. That is partially true, but in essence, for bitcoin to become safe, it had to undergo some kind of crowdfunding effort. Early adopters who started mining in essence, were investing in the bitcoin project. Many would say that investing electricity in mining for bitcoin, was the way to launch bitcoin’s initial coin offering, since investors would pay for electricity in order to secure the network, and in return they would get a reward. That reward halves after every time 210,000 blocks are mined, and mining becomes more difficult as more miners join the network, creating that diminishing scale of return initial coin offerings nowadays try to recreate through their funding schemes. Taking the halving of mining rewards as ICO rounds, would complete the parallel between today’s ICO and the way bitcoin came to be widely adopted.
Pre-mined Coins vs Bitcoin
Most people would agree that the creation, launch and adoption of bitcoin (or even Litecoin) will never be recreated for another cryptocurrency or blockchain project. This means that most ICOs will necessarily have to pre-mine part of their coins in order to launch their project. There are some exceptions like Zcash. This cryptocurrency was not pre-mined for its initial coin offering, but that affected its price afterwards. Since the demand for the coin was high but the supply was low due to the absence of pre-mining, price skyrocketed to $5,292 USD per coin just one day after the initial coin offering. Zcash price subsequently crashed.
Although cryptocurrency purists would like to see more ICOs mimic the way bitcoin launched, there is value in having a certain degree of pre-mining before the cryptocurrency launches. In any case the creators will always have the first mover advantage, and will likely have a sizeable stash of coins stowed away. Even Satoshi Nakamoto is known to have 1 million bitcoin, so any exercise in limiting the amount cryptocurrency creators can keep, is pointless. Nevertheless some developers promise to “burn” part of the pre-mined coins once they launch an ICO. This is an effort in self-regulation that might make a given project more appealing. Users will then be able to corroborate that the coins were “burned” or disappeared through various verification mechanisms.
How does an ICO work?
In broad terms, cryptocurrency creators design their blockchains, protocols and rules under which their cryptocurrencies and networks will operate. Then they set a date for the initial coin offering. In most cases, they will start mining for coins to sell during the ICO. The next challenge is to get a critical mass of people to be ready to buy the coins on that date and start using them. In the meantime and up until that date, cryptocurrency creators make the final adjustments to their blockchains – which hopefully they have already checked and debugged thoroughly by the time they sell their project to the public.
Cryptocurrency creators also need exchanges to take up their cryptocurrency. These exchanges serve as brokers, and play a role similar to that of the stock exchange during an IPO. Then when the countdown to the ICO reaches zero, people who have an account at these exchanges, are able to buy the new cryptocurrency with other cryptocurrencies or with fiat money.
Where can I find ICOs?
Initial coin offerings are often announced through Reddit or through other social media outlets. Now, Bitcoin Chaser will also have its own ICO announcements within its very own ICO hub. Bitcoin Chaser readers will be able to find the latest information on initial coin offerings right here on this page, together with links and articles about them.
Trusted Bitcoin Exchanges with ICOs
Once readers have selected their desired ICO, they will be able to buy into it through their favorite cryptocurrency exchange, or directly through the official website of the developers launching that ICO. Here at Bitcoin Chaser we have 3 main cryptocurrency exchanges that we have worked with, through which readers can buy their new coins. The following is the list of these exchanges:
Depending on where users are in the world, each broker will ask for different types of documents in order to open a trading account and allow the user to trade. If you are interested in participating in initial coin offerings through any of the exchanges above, please follow the links to their sites and make sure you read their rules and disclaimers clearly before you start trading. We must warn you that ICOs just like IPOs and any other investment, entail risks. You must be completely certain that you are aware of the risks and can take responsibility for potential losses. This is part of your due diligence as an investor. Bitcoin Chaser will not take responsibility for any of your financial decisions.
Most Successful ICOs
Aside from bitcoin, the most successful ICO so far is Ethereum. But there are certainly other initial coin offerings which have made it into the history books for the amount of money raised and the time it took them to get there. Here are some examples based only on the amount of funds raised and the time it took these projects to get there:
- Ethereum (Ether-ETH) – $18.5 million USD equivalent (bitcoin + fiat).
- MaidSafe Coin (MAID) – $7 million USD raised in just 5 hours, holding the record for most funds in the shortest amount of time.
- ICONOMI (ICN) – $9.1 million USD equivalent, $5.8 million of which came within the first 30 days.
- Lisk (LSK) – More than $5 million USD equivalent raised.
- Augur (REP) – More than $4.7 million USD equivalent.
Can I Mine and Sell the Coins at an ICO?
Some ICOs, like NeuCoin for example, are not in the list above because they raised funds before the initial coin offering, paying angel investors with the cryptocurrency they created. This means that in theory, it is possible to mine coins before the ICO, but generally just the developers in charge of the project can do so. Many of these initial coin offerings sell pre-mined coins at the ICO, but it is hard to find information about angel investors selling their coins through this system. Some might argue that any such projects that has backing from angel investors, cannot really call for an initial coin offering when they first offer their cryptocurrency to the public. An answer to this question is therefore more an issue of semantics than anything else.
*Bitcoin Chaser is not responsible for any of your investment decisions. This page is merely meant as a source of information, and our ICO vetting mechanisms are not the ultimate seal of approval for any ICO. We are working to improve these mechanisms all the time to filter out any possible scams or pump and dump schemes. Please check the information behind any ICO you wish to invest in thoroughly, including the business model, the reputation of its creators and the quality of its coding before investing. Keep in mind that good investors always do their homework and never rely on a single source of information.