Born in 1999, and now born again in 2017, Overstock.com is launching the biggest ICO in history. Sure, Initial Coin Offerings — otherwise known as an ‘Initial Public Coin Offering’ (IPCO) — are sometimes considered to a be a bit shady, but with this breakthrough claim to have created a federally regulated platform according to Securities and Exchange Commision (SEC) standards, what does it take to make a credible ICO?
In its most basic form, ICOs are a new way to fund tech projects through the use of cryptocurrencies or tokens. By offering a faster, more transparent solution to crowdfunding a project and eliminating the search for an initial Venture Capitalist (VC), there is some serious cash to be made.
Traditional methods of investment have included buying shares in a company in order to gain future profit, and ICOs work in a pretty similar way — but better. The first decentralised digital currency was ‘Bitcoin’ where you could, and still can, purchase anything from money to property. According to Coinmarketcap at the time of writing this article, one Bitcoin has the value of $6,408 USD and that amount has the potential to be split between 100,000,000 pieces — this is where cryptocurrency comes into play.
Each divisible unit of one Bitcoin is uniquely identifiable and programmable. By giving digital currencies a bit of brain, we make them more efficient and it makes automated money flows a reality. For example, imagine owning a business and being able to manipulate your budget so your money goes only where you tell it to; employee salaries, electric bills, insurance fees and the rest. Wouldn’t that be cool? It’s essentially a programmed, democratic bureaucracy; a definitive paradigm shift in the realm of future digital currencies versus dated money ties and cash flows.
Let’s break it down. Firstly, there are lower fees for businesses as all transactions are made directly from person to person, as opposed to going through banks or clearing houses. On top of that, there are no fees to start trading in cryptocurrencies and the online world is your oyster. Globally accessible, you’re free from arbitrary limits and prerequisites opening yet more doors on the blockchain. The blockchain you ask? Only the open source public ledger giving total transparency to everyone involved in ICOs. Often isolated and closed to the public, this ensures a shared single source of truth where everyone can see the logged transactions, times, dates, the participants and everything else involved in trade.
Obviously, this is a lot of information surfacing at the door of corruption. Yet special computers called ‘miners’ verify every transaction that takes place, and unless all miners are in unanimous agreement, the transaction doesn’t go through. This lessens the risk of corruption and keeps the blockchain safe. Truly a platform for innovation, ICOs give total ownership to businesses and there’s so much room for more. To be successful, and meet the one-billion dollar mark like several companies this year have already, is not easy. It’s a risky business, but that’s why four billion dollars is expected to be raised this year. A potential solution for the bootstrap problem so many startup companies face, times are a-changin, my friends.
Components of a successful ICO
With so many companies attempting, and often failing, to become a successful ICO, it’s little wonder there are only a few big names that dominate the market. The go-to online index for providing key metrics on alt coins — Coinmarketcap — lists the following as the world’s top 10 ICOs:
- Bitcoin (BTC)
- Ethereum (ETH)
- Ripple (XRP)
- Bitcoin Cash (BCH)
- Litecoin (LTC)
- Dash (DASH)
- NEM (XEM)
- BitConnect (BCC)
- NEO (NEO)
- Monero (XMR)
So what are the building blocks of a lucrative ICO? Here are a few important ones:
Authenticity and transparency are key — people will not feel comfortable investing in or having invested in your ICO if they feel like they don’t know what is going on behind the scenes. The more covert an ICO’s operations are, the less confidence potential investors will have in it. Furthermore, a lack of honesty can make those who have already invested in the product or service nervous.
The value proposition of your product should resonate with you and your brand. Creating an ICO that provides a product or service you’re passionate about is going to take off far more quickly and easily than if you were to start something that has no correlation to your life or ideals.
Along similar lines, investors tend to be most interested in three things: the team behind the ICO, their goals, and the methods by which investors’ interests are protected. These should be laid out clearly in a video or on a website (or both) so potential investors may gain confidence in the product or service. Investors are far less likely to invest, for example, if the team behind the ICO chooses to remain anonymous.
It’s also important, before moving forward with your ICO, to determine if your product or service is a good match for a digital token. Ask yourself what the benefits are behind having an alt coin. If you can’t find a good reason, you’ll have better luck finding an investor or raising money on Kickstarter or a similar crowdfunding platform. If the only use for your digital coin is to be bought and sold on the exchange, it’s not likely going to work.
Another key aspect of a successful ICO is responsible fundraising. Teams behind an ICO should remember that how they raise their money — and how much they raise — could come back to haunt them later if they don’t take care. Projects that raise huge amounts of cash risk diluting the value of their token, resulting in unhappy investors should the ICO not turn out to be a huge success. Create a financial plan beforehand, and raise only what you need.
Finally, it’s crucial to set realistic and clear goals, and to publish a white paper that acts as a roadmap for achieving those goals. The white paper should lay out the key aspects of the product, what problems it will solve and how. The roadmap should include achievable goals, along with timeframes for achievement. Such organisation and transparency demonstrates that your team knows what they’re doing, and that your product has been developed with careful thought and steadfast goals.
The need for an ICO rating
As no official ICO rating exists in the marketplace, another important aspect for carrying out a successful ICO is to establish a rating system for potential investors to constitute more credibility in the marketplace.A rating system would not only limit the amount of fraudulent activity and corruption risk, but would again promote a higher level of security and transparency to all parties involved.
A lucrative rating system would first include a few different company-based scoring methods, such as an investor interest level and a risk assessment. Having an investor interest level is beneficial for promoting healthy competition and a sense of scarcity among potential investors, thus creating more awareness and attracting people to a new ICO project. A risk score would be extremely beneficial as well for assessing the amount of potential fraudulent activity happening behind the scenes, along with gauging the overall quality of the project too.
Similarly, investors’ main concern lies in their ROI — or return on investment. Having an official ICO rating system with an investment potential score, as well as an in-depth overview of a beta ICO, would heighten buyer potential and promote more transactions based on a higher sense of security and trust. Then again, some investors like a little more risk — but an ICO rating system would still be beneficial for them to view and purchase ones that are more volatile.
Moreover, having a scoring system would ensure that integrity is being upheld within the team under the ICO. As previously mentioned, people will not feel confident investing in ICOs if they do not know what’s going on behind the scenes. With that being said, there’s a greater probability for corruption right now as there are no official regulations or ways to make sure companies are being honest with their ICO-related activity. As the U.S. Securities and Exchange Commission has let the ICO market largely develop with no guidance, they’ve recently warned startups that they could be violating security laws with token sales. Private companies are also required to file a disclosure whenever they raise private cash. An ICO rating system would not only ensure these standards are being met, but would endorse a higher sense of virtue for all new ICO teams.
To sum up, in order to carry out a successful ICO, it is important to have a solid team that operates by specific guidelines created by the SEC. From here, you can develop a strong ICO brand based on responsibility, integrity, and create an ICO rating scale to systematise the whole process. As ICOs gain traction in the marketplace, having both the startups and the investors operate according to these standards will ensure a higher level of success on both ends. This new form of fundraising is a great solution for the bootstrap dilemma many startups face, and with new developments, can be an extremely profitable and efficient way of giving companies a more democratic way to launch using digital currency.
A solution in the mist
So, amidst all these ICO rises and tumbles, bubbles and pops, where is an investor to turn? Finally, there is a trustworthy source — also built using blockchain technology — that aims to guide uneasy investors in the right direction. Revain has recently raised funds through a crowdsale to secure funds for R&D for its revolutionary technology, which allows users to review ICOs side-by-side, see other users’ experiences, and evaluate investment risk. In partnership with ICOrating.com, Revain will allow users to review the most important elements of an ICO, including its business model, market segment, team, competition, technical background, and community reviews. Following the development and public unveiling of this groundbreaking technology, Revain’s developers have plans to further disrupt the market by taking the blockchain mechanics that form the core of these online reviews to other markets, from e-commerce to gaming.