What is an ICO (Initial Coin Offering)?
An Initial Coin Offering, or ICO for short, works like traditional crowdfunding campaigns using cryptocurrency tokens instead. HOWEVER, an IPO (Initial Public Offering) lacks all the regulations an IPO does, with funding rounds of PS20M+ possible with just a whitepaper and a small team in place.
Contrary to VC or IPO investments, purchasing tokens doesn't entitle the buyer to the ownership stake in an organization; they simply represent its ICO project like Kickstarter pledges can do and can be exchanged as an early expression of support for that venture.
Fraudsters have taken advantage of people by issuing "tokens," or coins, promising they are valuable and selling them without permission. While seemingly lacking regulations or oversight, such offerings allow small businesses and startup owners to test their concepts with potential customers and gauge whether they would invest in their products.
Crowdfunding provides an efficient alternative to conventional financing approaches (i.e., IPO, VC funding or loans). You can quickly get going by testing and piloting your product before finishing it. An initial coin offering (ICO) allows businesses to quickly raise capital without going through traditional auditing or regulatory processes, prompting many individuals to express concern regarding its security.
ICO Security Issues
As with the traditional world, cryptocurrency investing requires users to protect themselves and their investments independently from banks or large institutions; you will have to consider numerous variables - not least of all Bitcoin or token prices or their equivalent values - before taking steps that protect yourself.
Cybercriminals pose a formidable challenge to Initial Coin Offerings (ICOs) and digital wallets, so any fund named the Decentralized Autonomous Organization or DAO lost approx $50,000,000 worth of Ethereum cryptocurrency due to inadequate security. In order to recover their funds, DAO had to fork (change core code) the Ethereum network in order to recover them, showing great faith and commitment even under trying circumstances.
Over 50% of ICO fundraising rounds failing to hit their targeted market capital goal is alarming, but don't despair: funds can still be returned as necessary (in this instance, all funds returned or alternative options such as reverse Dutch auctions may apply).
Another main worry for investors is how to safely convert cryptocurrency to tokens - digital assets they own that they can give out - such as Ethereum or Dash. One innovation in the sector that may help is user-friendly GUI wallets that transfer coins easily without needing a lengthy public key input process.
Why Marketers Should Care
Planning from the outset for marketing your product or service can be essential - even more than development itself - as its image remains consistent over time.
What you should know:
- What is the process in your system to use it?
- It solves what problem?
- What is the best method to use?
- How unique is your product?
You can use a methodology such as "The Lean Startup" and the 'Value Proposition Canvas" to ensure that your target market exists and is interested in the project you are launching.
Marketing ICOs: How to Build a Strategy
Three elements should be the focus of your marketing strategy.
- Bring in potential investors for your team.
- Community Building
- Meet potential investors by "getting out of the building."
Invite Members of your Team to meet Potential Investors
An anonymous group running a project reeks of scams. If your idea led to its creation, put your name out there! ICOs usually include details regarding team members, advisers, partners and sponsors, and team members of all sorts (team leaders, advisers, etc.). Furthermore, will it launch simultaneously across multiple countries with language requirements being fulfilled by you?
Ideally, your advisors should have completed an ICO round.
The partner should be real - do not just plaster around the CoinDesk Logo everywhere if that person has never heard of it before; focus instead on building relationships to support you; consider hiring influencer networks as they will boost both reputation and news feed visibility.
Create a Community for your Project
Transparency means creating community and brand recognition to ease potential investors' concerns about investing in you or their product or service. Do things such as responding directly to customer queries to build loyalty for future growth of the business and ensure its champions can support its expansion.
Handshake with Potential Investors
Understanding and being aware of your audience are paramount when raising money through an ICO, so put yourself out there (literally!). Many crypto-related events, such as conferences and seminars, take place nationwide - attend these to test your ideas by asking fellow cryptocurrency enthusiasts whether your solution would meet their needs or is something they are encountering struggles with.
Implementing an ICO Marketing Strategy
Cryptocurrency industries are growing and are creating niche opportunities, giving marketers creative latitude when developing marketing efforts that may differ from typical SaaS solutions. Testing should focus on gathering results quickly so as not to waste precious marketing dollars by testing incremental steps towards targets, keeping what works and cutting out anything not working effectively - with any efforts starting small and working upwards from there. Here's how you can start:
SEO-Optimize Your Website Build
Search Engine Optimization, also known as SEO, plays an essential part in this unregulated industry. In some instances, an initial coin offering (ICO) website and brand have been copied with minor variations to their URL; as an example: Etherdelta.com was recently copied as "ethdellta.com," while. "one." Sending potential investors onto inappropriate websites could damage reputation and security; hence, your site should rank higher on search engines such as Google or Bing and notify these platforms if any infringes upon trademark infringement occurs - then notify Google directly if this happens again.
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Create a Technical White Paper that is Detailed
White papers form the cornerstone of every crypto-tech project. Investors will first examine your whitepaper to gauge its viability as an idea; it should include your business plan and details regarding any technology you will use and why an initial coin offering (ICO) might offer value to its end users.
Make a Short Explainer Video
An explainer video can speak volumes. Create one to give investors and users alike an overview of your solution.
Spend Money on Banner Advertisements in Relevant Publications.
Consider purchasing banner ads to build brand recognition and get your blockchain project seen by potential investors. Banners could be placed on blogs, forums or publications that attract readers passionate about digital currency, bitcoin and Blockchain technology. Inquire with website admins on metrics and prices. These may be managed through display networks, but they may also be managed directly; keep an eye out, as many crypto news channels may take advantage of ICO hype with offers for content packages and monthly advertising packages aimed at driving awareness for your ICO launch project.
Community Building is the Focus
At first, most cryptocurrency enthusiasts began discussing what worked and what was new on forums such as Bitcointalk.org or Reddit. Your team should participate actively and create a presence; be mindful that participation must add real value instead of becoming promotional for corporate shills or advertising ploys.
Create an Email List
Beginning on day 1, email marketing should become your top marketing priority. A mailing list allows you to send updates, content and ambassadors directly to users - increasing the success of product/service launches by 10x more!
Utilize Social Media
Social media provides the ideal venue for product sales to spread organically if that is what is desired; numerous platforms provide data that can help spread the news of its launch via events, groups, Messenger, Stories, Shares, Likes etc.
Tap Into Influencer Networks
Influencers can help promote your products quickly. Just make sure that their audience would love what it offers! When hiring influencers to promote, make sure they believe in it themselves and the solution offered to their audience as part of the partnership agreement.
Read More: Initial Coin Offering (Ico): Examples And A Definition
Glossary Terms for Cryptocurrency Trading
- Initial Coin Offerings (ICO). Similar to an initial stock offering, ICOs are a crowdfunding alternative that can be used to raise traditional capital through venture capitalists, angel investors and traditional investment companies.
- Cryptocurrency Exchange is a web-based platform that allows you to buy or sell cryptocurrency in exchange for fiat currencies and other cryptocurrencies. Some notable exchanges are Coinbase/GDAX. CEX.io. Gemini. And Kraken.
- Fiat Currency, Legal tender money as defined and issued by a government. US Dollars, Pound Sterling, Euros, etc. are examples.
- Altcoin is a term that refers to any cryptocurrency other than Bitcoin and Ether. They include Ripple, Litecoin Iota and many others.
- Token The currency of projects that are built on Ethereum's Blockchain. Examples include OMG (OmiseGO), GNT (Golem), and QSP (Quantstamp).
- Pump and Dump A cycle in which low-value coin values are inflated with cash injections before being sold for a return on investment. The coins themselves or their underlying technologies do not gain any value.
- Market cap is not just for cryptocurrency; it can also be used to describe traditional markets. The total value a company, coin or other asset holds. Multiplying the available number of coins or shares by the value of each coin or share.
Cryptocurrency Glossary
- Blockchains Cryptographically secure distributed ledgers are at the core of all technologies enabled by cryptocurrencies like Ether. The Blockchain is an open database that contains all the transactions, technologies, and coins.
- The Node is a computer that works actively to validate new blocks and transactions on the Blockchain.
- A wallet can be in a software format (Parity or MyEtherWallet) and a hardware one (encrypted drive). It is an electronic place to store your cryptocurrency. These wallets must be protected with high-grade encryption to prevent hackers from stealing your coins.
- Mining is using high-powered computers (i.e., Using powerful computers with high CPU and GPU processor power to complete the blocks in the Blockchain). This processing power can be used to earn a fractional cryptocurrency coin.
- Gas: The amount of cryptocurrency required for a particular transaction, based on how much processing power is needed to finish it.
- Fork: When two coins are created from a single cryptocurrency due to a split on the Blockchain. This usually happens when there are differing opinions about the best way to move forward with the technology of the Blockchain.
- Proof of Stake is a proposed system that would eliminate the need for work and, therefore, massive computing power by allowing users to validate or mine a block without having to produce proof of work. The amount of cryptocurrency that they own is what determines their validating power.
- Proof of Work is the current method by which blocks on a chain are validated. To ensure that the network accepts a block, the miners must complete a Proof of Work, including all the data in the block. (Source)
- Smart Contracts - Protocol that allows secure contracts to be signed, verified and enforced by intermediaries without the involvement of intermediaries. Blockgeeks gives a great description of smart contracts: "The best way to understand smart contracts is by comparing the technology with a vending device. Normally, You would go to an attorney or notary and pay for the document, then wait until you receive it. Smart contracts allow you to drop bitcoins into vending machines. The ledger will deposit your driver's license, escrow, or other documents into your account. Smart contracts are more than just a way to define rules and penalties for an agreement. They also enforce these obligations automatically.
Future Finance: The Future of Finance
Blockchains remain uncertain whether they'll become nothing or everything; their price currently hovers between US$10,000 to US$15,000 while media attention has moved on to other issues, making it hard for readers to determine whether their revolution has stopped moving forward or has reached its destination. Initial Coin Offerings (ICOs), commonly referred to as token sales, provide a useful lens through which regulators and participants may consider issues they face in this space.
Digital tokens are digital coins created with blockchain technology - similar to what Ethereum, it's more flexible cousin, uses. An ICO often features a smart contract application layer on top of this network which sets out rules governing its existence, sold off to investors by entrepreneurs in exchange for Bitcoin or another liquid cryptocurrency such as Ether or another liquid form of payment such as cryptocurrency like Ripple.
Wulf K.A. offers insight into ICOs by outlining their motive in his article " Initial Coin Offerings (ICO) in 25 Jurisdictions with their Relative Reg Responses." Since ICOs don't offer interest or principal repayment, his interpretation suggests they might resemble a gift more than an investment - tech optimists could argue they pay to go along for the ride. In contrast, tech cynics might accuse investors of being taken advantage of.
Lack of ownership rights may be used to streamline an issue process and bypass securities regulations. However, this has variable results: tokens are bearer instruments that do not give access to assets or income of their issuer or grant some privileges associated with accessing products/services developed by the said issuer (so-called Appcoins, which function similarly to crowdfunding projects). The Swiss Financial Market Supervisory Authority has developed a taxonomy for tokens.
- Payments Tokens, similar to cryptocurrency, are used to transfer or purchase value. They do not entail any claims against the issuing company.
- App tokens, also known as utility tokens, are used to allow access to an app that is related to the token.
- Asset tokens are tokens that promise future earnings or capital claims. They can be traded on the blockchain and represent off-chain assets.
- Tokens with hybrid features combine the characteristics mentioned earlier.
Read More: What is Initial Coin Offering: Key Benefits
SAF, but not SAFE
As tech has advanced and regulations have tightened up over time, this taxonomy may no longer apply; its original purpose of using tech to circumvent regulation has faded into history. Matt Levine provides further insights in his Crypto Offerings: Slowly Growing Up article for further reading on this matter. By trying to operate outside the purview of regulators and authorities, ICOs have paradoxically attracted attention from authorities from multiple fields--even those unrelated to capital formation directly. As evidence of this approach can be seen from FinCEN, its recent statement indicated they view developers offering initial coin offerings (ICOs) as money transmitters that must abide by anti-money-laundering and counterterrorism regulations. Levine notes that Initial Coin Offerings (ICOs) are more tightly regulated than stock issuers because an ICO cannot be considered money transmission services, leading to mis-spelling lawsuits against early-generation ICOs and numerous class action suits against well-known defendants. His article details this point well.
Some ICOs are trying to find a middle ground by adopting the Simple Agreement for Future Tokens framework (SAFT), inspired by convertible note innovation in venture capital: the Simple Agreement for Equity. A SAFT structure permits an issuer to offer coupons through private placement to accredited investors for purchasing tokens that will later be publicly issued through an initial coin offering (ICO). Coupons that can only be exchanged among accredited investors will not be very effective for building networks. Thus, SAFT converts securities into non-security utility tokens at its ICO once the service is up and running - this way, coupons delineate between the venture capital investment/speculation phases of an ICO and subsequent use-case phases of it.
Over the past year, the US SEC issued multiple subpoenas regarding initial coin offerings (ICOs), likely in connection with the misuse of SAFT where public utility token ICOs were launched immediately following presales, enabling near-instant trading of tokens contrary to SAFT's intent. CFA Institute and others have noted that most financial issues result from unethical human behavior instead of technology; hence ICOs' future remains promising.
Swiss Crypto Valley
Johann Schneider Ammann, minister of economics in Switzerland, has taken steps in recent months to brand them as "crypto-nations," using terms the Swiss Prime Minister coined. Given their long standing advantage when it comes to banking privacy and an entrepreneurial approach towards financial services, Switzerland made strides to position itself as such; Zug canton specifically has made efforts in branding itself as such; this led them to establish the Crypto Valley Association - an industry association dedicated to startup companies working within this space.
FINMA released guidelines for an initial coin offering (ICO) regulatory framework, cementing its standing as one of the premier jurisdictions for fintech regulation.
FINMA Guidelines clarify when tokens may be classified as securities and require compliance with relevant securities laws. Cryptocurrencies or payment tokens do not fall into this category. In contrast, utility tokens that serve purely to grant access to software products or services do not fall either. Asset tokens, however, can be considered securities as they can mass trade, e.g., SAFTs during pre-ICO.
Switzerland's lower house recently approved a resolution to divide regulatory from supervisory powers.
The EU's David and Switzerland's Goliath
Initial Coin Offerings (ICOs). Kaal provided some insightful statistics regarding Switzerland, such as their share in terms of global issuance: United States (1st), United Kingdom (2nd), Russia, Switzerland and Singapore (5th to 8th respectively) when measured by number. When measured according to the amount raised for charity ICOs, Switzerland leads closely, followed by the United States. Still, it is at a considerable distance between Israel and Singapore, with Switzerland coming in 2nd on total raised funds raised, unlike Financial Times rankings that see Switzerland second only behind the United States while Russia and Singapore are further back.
Based on any ranking system chosen, France, Estonia or Lithuania rank high on either number of initial coin offerings raised (ICOs) or the total amount raised in EU-27 by either number or total amount raised - but all three do not make a list; both metrics place the United Kingdom ahead. Thus the recent release of the EU Fintech Action Plan seems optimistic: its goal is to leapfrog other markets to make the EU the global hub of fintech, as claimed by Vladis Dombrovskis; even more encouraging is that its design prohibits legislative actions before.
Fintech Action Plan appears to have been devised primarily with one purpose - prioritizing fintech on Europe's agenda when current European Commission terms end) by adopting best practices from other nations and adopting them ourselves when second-generation ICOs emerge.
Capital Formation: Is the Death of Equity Bringing about the Birth of ICOs and ICOs as a New Form of Capital Formation?
Preston Byrne writes in "The American ICO Is Dead" that for their second-generation ICOs to survive and thrive, they must 1) acknowledge their regulatory status effectively and (2) present investors and issuers with an offer relying more heavily on decentralization's potential competitive edge rather than arbitrage as its foundation.
In " Bitcoin is Based on the Blockchain Pipedream, " Nouriel Roubini and Preston Byrne make an eloquent case against blockchain's claim to superiority over centralized systems in "Bitcoin is Based on the Blockchain Pipedream." At its heart lies one question: Are distributed systems (which require redundant nodes performing the same verification task) worth paying the efficiency penalty in exchange for increased resistance to censorship (due to multiple copies having true state) of information databases?
Over the coming years, we will see whether distributed ledger technology can be utilized to streamline capital formation processes. According to assessment, capital formation processes could benefit greatly from distributed ledger use. Many parties currently use multiple centralized processes that often entail redundant silos, with many redundant verification checks being repeated by many parties involved in capital formation processes.
CFA Institute is avidly interested in capital formation issues, particularly their decrease over time*. Initial Coin Offerings (ICOs) represent an innovative new method to meet capital formation challenges while raising regulatory issues within the structure of the market; as years pass since the crowdfunding industry hype began, it's exciting to observe if ICOs can move away from being seen purely as speculation tools towards becoming long-term capital allocation tools.
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Conclusion
An Initial Coin Offering, or "ICO," can be seen as the offspring of an Initial Public Offering, online crowdsourcing, and crowdfunding campaign. A token issuer sets an exchange rate that allows contributors to exchange existing coins for new tokens of equal value; "X amount" of the existing coins gives rise to "Y amount."
Tokens serve two main purposes, either as utility tokens or securities. Utility tokens tend not to be regulated, and startups often utilize them to raise capital for projects while, in exchange, receiving future access to services in development. A security token, on the other hand, acts like an unlisted stock with ownership characteristics regulated by SEC; many worry that initial coin offerings (ICOs) represent another form of scammy venture capital funding, while many remain skeptical that such offerings represent true solutions or just opportunities to get rich quickly through issuers' wealth creation potential; only time will reveal its true potential or not!
