Are ICOs dead?
What is an ICO?
ICO is an acronym that stands for Initial Coin Offering. In simple terms, ICO refers to an unregulated means of raising funds for a new cryptocurrency project. It is a financing process commonly used by startup cryptocurrency projects as an easy alternative to obtaining the capital from banks or venture capitalists which is a more rigorous financing process.
What Does An ICO Entail?
This can best be understood by examining how an ICO is conducted. Simply, how an ICO campaign functions is that a percentage of the cryptocurrency is sold to the project’s early backers in exchange for legal tender or any other cryptocurrency (which is more often than not Bitcoin.)
In practice, such startups create a plan on the project’s whitepaper that highlights everything about the project from what it is about, the needs the project seeks to fulfil upon its completion, the amount required for the project, the duration of the ICO campaign, among other things. If the firm is unable to raise the minimum sum needed during the duration of the ICO campaign, the money is handed back to the early backers and the ICO is labelled unsuccessful. On the other hand if the minimum fund is raised within the deadline, the sum is then used for the purpose for which it was raised and that can either be to initiate a new project or to complete an already existing project.
Are ICOs Dead?
Recently, several issues have been affecting ICOs and the cryptocurrency sphere in general. These issues range from high-profile scams to criticism from financial authorities and different bans affecting cryptocurrency operations. These has reportedly led to lesser trust in ICOs as a means of raising fund and has made the continuous existence of ICOs up for debate.
Some of the issues that have threatened the existence of ICOs include:
- A lot of recent developments have adversely affected the perception about ICOs and the crypto sphere at large. For instance, a lot of thefts and scams have affected the crypto community as they have brought the traditional ICOs under major criticism and also increased skepticism about ICOs.
- The rapid growth witnessed in the crypto space has caused the financial authorities and a lot of criticisms have been raised on the lack of regulatory measures in the industry.
These issues with ICOs are hindering the progress in the crypto space. However, the growth is still occurring and the ICO cannot be pronounced dead yet because the problems have been leading to the development of new solutions. A lot of projects based on blockchain are constantly emerging in virtually all industries. However, there is an increasing likelihood that ICO will be substituted by other means of raising funds.
In fact, a lot of businesses are beginning to consider how to upgrade their current blockchain-based funding methods such that it meets with regulators’ demands while also addressing the respective business needs. In essence, the crypto space is experiencing evolution as a result of a deeper understanding of the problems characterising traditional ICOs.
Several measures are already in place to solve these issues. For instance, crypto ad bans have been introduced as a result of the mistrust in the crypto space. This ban has made attracting early backers very difficult for the new cryptocurrency projects seeking capital through initial coin offerings. This in turn has led to a lot of the startups holding airdrops to increase interest in the crypto community. Airdrops refer to the distribution of free tokens so as to incentivize people to learn about a project and support the project. Thus, even if there is a death of ICOs, this blockchain-based marketing strategy, for instance, is likely to outlive it.
Also,some crypto projects have begun to introduce their respective fundraising methods. For instance, a particular project known as blockhive is getting funds via initial loan procurement. ILP for short is a crowdfunding method that makes use of cryptographic tokens to make it possible for early backers to access and also sign loan agreements on blockchain. It shares similarity with ICO in the sense that it lets the buyers purchase a startup’s tokens. However, it differs in the use to which it is put, because rather than using the tokens to access the services provided by the particular platform, it allows the early backers use the tokens to access loan agreements which are legally binding.
ILP differs from traditional borrowing as it allows those with the funds to become the creditors. Thus, startups no longer need to rely on the bankers who may not give a loan they do not like or understand. It democratizes crowdfunding just like ICO but goes further as it complies with KYC/AML as well as some other protective measures.
Another alternative blockchain-based fundraising is Security Token Offerings. These shows that tokens can be regarded and used as securities. This alternative fundraising method also necessitates compliance with KYC/AML. In addition, it makes it possible for businesses to raise funds on the blockchain without being criticised by the financial regulators.
Initial Coin Offering was the first blockchain-based funding method to be introduced. This method has its own shortcomings and so developers are beginning to brainstorm ways to address the problems and develop viable solutions. The problems of ICOs are even made more obvious by the decline in trust which people have in ICO as a fundraising method. That has reportedly caused investors to begin to somehow steer clear of ICOs.
In summary, this article highlighted some of the alternative ways which companies and businesses are utilizing in a bid to continue using blockchain technology as well as new crowdfunding solutions which are being developed that can cause the occurrence of welcome changes in the crypto industry. Thus, even though the ICO might be nearing its end and at the brink of extinction, it cannot be pronounced dead yet. Also, other blockchain-based funding methods that are already in existence and the ones that will subsequently be developed will all combine to ensure that cryptocurrency startup projects still have other means of raising capital should ICO eventually die .