There are a ton of cryptocurrencies out there. Many with huge ambitions to create real change in the way we interact. From decentralised supercomputers, blockchain-backed lending, and incentivised healthcare, if you look long enough you’re bound to find a cryptocurrency project which promises your wildest technological dreams. The majority of these projects went through some kind of Initial Coin Offering (ICO) and/or token generation event to produce their cryptocurrency.
Just like many modern day startups, some ICOs have some serious promise and others…not so much. But before we look at the various merits of various ICOs, let’s first define what an ICO is and how they’re done.
What is an ICO?
Similar to the way a company sells shares in an IPO (Initial Public Offering), an ICO is a way for a cryptocurrency-driven project to secure funding from early investors or contributors.
So treat your investment in an ICO contribution like you would a business investment, do your research, get curious about the team and the project and make your decision - you should know however that a cryptocurrency token can have a lot more utility than a company share.
Aside from just raising funds, ICOs can be used to raise the value of the token or the network itself. This differs from typical fundraising - an ICO can have limitations put on it to incentivise certain behaviours within the community. For example you can ask investors for some non-monetary contributions, such as pledges or promises that will benefit the community.
How does an ICO work?
ICOs are generally housed online, where investors jump on a website and submit an application to take part in the pre-sale of their chosen cryptocurrency. Some sales are extremely public, allowing anyone to participate, where others are more private with a higher minimum investment or requiring a non-monetary commitment.
ICOs usually (not always) go through rounds or tiers. Where you might receive bonus tokens or a cheaper price per token for contributing in the earlier rounds rather than later.
After your ICO application has been approved, you send funds (often Bitcoin or Ethereum) to the project and the tokens are deposited into your cryptocurrency wallet. Later on, the cryptocurrency might be listed on an exchange, where you might choose to sell your coins. Or you might hold onto them for use within the platform.
How have ICOs been doing?
According to CoinDesk, from Jan 2017 to May 2018, over $US12 billion was raised in the ICO space, a ridiculous amount compared to the $US39 million in 2014–15.
During this period, a lot of investors excitedly got on board with dollar signs in their eyes, expecting big returns. But most lacked an understanding of what an ICO was and how tokens were generated and traded. This blind greed in a newly-regulated space lead to a huge upsurge in ICOs, some being legitimate, and some not.
Scammers did well to copy whitepapers, craft fake teams and/or use attractive marketing to allure investors. Thankfully, the United States’ Securities and Exchange Commission (SEC) and Australia’s own Securities and Investment Commission (ASIC) are doing an increasingly better job at halting these questionable ICOs early.
As we approach the 2nd half of 2018, the ICO space is a lot quieter. There are still plenty of ICOs, but it's nowhere near as noisy. Their quality has also increased and contributors have gotten savvier. The technology in the space has become incredibly competitive — blockchain technologists are building increasingly fancier algorithms with the fastest transaction speeds, all while using the least resources.
But as exciting as the prospect of all this technology is, it’s currently failing to interact and function within our everyday lives, contributing to a prevailing utopian problem with cryptocurrencies. The focus and purpose of ICOs needs to shift from generating money for an incredibly ambitious tech project to providing real-world benefits to real-world people.
How to spot an ICO with legs
When looking at an ICO, there are a number of things which will help you determine the project’s long-term success.
Ultimately though, the major question you need to ask is: “Will this platform benefit its users?”. If it does, it might just have legs.
The fact is, the blockchain and cryptocurrency space is full of some seriously incredible projects which could have incredible potential for our world (trust me, I'm excited). What’s lacking though, is a solid strategy to acquire users. No matter how incredible the technology, how valuable is it if there aren’t any users?
One indication of a crypto project’s strength is to see if a user-base for the platform already exists. Although not all existing businesses and platforms will benefit from a cryptocurrency (outside of raising capital), considering the company’s functioning user-base can help you assess what additional benefits a cryptocurrency might provide. Crypto projects should exist to enable more complex exchanges between users and help facilitate wide-spread adoption.
Liven has been running for four years and has over 200,000 users across Australia’s two largest capital cities. Our LivenPay project has a simple goal: to build a cryptocurrency for the real world, and making the capabilities and benefits of blockchain technology accessible for brick and mortar businesses and everyday consumers.
If the project in question doesn’t have an existing platform, assessing it can be a bit more difficult and requires more research and foresight. Reading the whitepaper, scouting out competition and interacting with its online communities will help you determine if the cryptocurrency will succeed in the future.
We know that cryptocurrencies and blockchain technology can benefit users, but the users need to be there in the first place. So don’t rely on a smiling set of founders and a polished whitepaper. Ask how this project will acquire a user-base and benefit them, and then you’ll start to see what has legs, and what’s falling flat.
DISCLAIMER: This information is general in nature and has not taken into account your personal financial position or objectives. It should not be considered financial advice.
Read more about how The LivenPay project is building a stable cryptocurrency for the real world, and making the capabilities and benefits of blockchain technology accessible for brick and mortar businesses and everyday consumers in this announcement.