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6 Benefits of Initial Coin Offering Options As Crowdfunding
February 12, 2020

6 Benefits of Initial Coin Offering Options As Crowdfunding

Only a few years ago, Bitcoin changed the finance game forever. As Bitcoin grew, the concept of blockchain and alternative coins grew alongside it. With this growth came the realization of cryptocurrency as a fundraising opportunity. In a world with significant barriers to entry for early-stage investment, this was a goldmine. Enter the initial coin offering or ICO. With this, businesses raise money through cryptocurrency coin creation.

But what is an ICO? How can it benefit your small business? In this post, we’ll cover the benefits of initial coin offerings.

What Is An Initial Coin Offering?

In the world of cryptocurrency, an ICO has many parallels to an IPO for a stock. ICOs, token sales, and crowdsales events allow companies to raise funds. They do this by releasing cryptocurrency to interested parties in the form of a new crypto token. But why is this a viable option?

Let’s say you own a startup in Silicon Valley that has a stellar new concept for a cryptocurrency system. Maybe you’re looking to make the payment processes for hotels more effective and encrypted. In this example, we’ll call this concept LodgingCoin.

However, there’s an issue. To make an effective currency option and platform, you need investors. Although you could apply for a bank loan or contact venture capitalists, what if you didn’t have to?

Instead, what if you could fundraise without forfeiting ownership stakes in your idea and your business? This is where the ICO shines.

Here is how to start an ico as a business owner:

  • Your team members develop a white paper, which is a document detailing how your idea will work.
  • Marketing efforts begin, with a reliable website and social presence, and summarized proof of concept.
  • You request funding, typically in Bitcoin or Ether, but you could also accept regular payments.
  • In return for funding, you provide buyers with some LodgingCoin.

The hope is that your business idea will receive extensive publicity, buy-in, and use. This high circulation leads to increases in currency value. In turn, people’s initial investments increase, much like a stock would post-IPO.

This brings up an important distinction regarding ICOs in comparison to an IPO. Unlike in an initial public offering, investment in an ICO doesn’t result in ownership stakes in the company.

Essentially, buying into a project such as LodgingCoin is a gamble of sorts. The risk is that the value-less currency bought now will increase in value at a later time. This, in turn, will lead to a profitable investment.

The Benefits Of ICO’s

Initial coin offerings have extensive benefits for business owners looking to start or grow opportunities. IPOs and other funding options have significant barriers to entry. However, beginning a coin for a project, once understood, is fairly simple.

Below are some of the many advantages of initial coin offerings.

1. Anyone Can Buy Tokens

Token launches differ from equity sales in a large-scale initial public offering. An IPO comes with extensive regulations via the Securities Exchange Act of 1934. A token launch can be equated to the sale of digital keys.

Participation in an IPO is typically limited to accredited investors with over $1 million in net worth. Conversely, tokens sold at an initial coin offering (ICO) can be sold to anyone, as most purchases are anonymous.

Why does this matter? Only about three percent of the US adult population meets the $1 million net worth threshold. This means only that three percent qualify for investing in an IPO.

However, 100 percent of the US adult population are capable of buying into an ICO. This is a 33-fold increase in the available financing base.

2. Tokens Can Be Sold Globally

An ICO provides the opportunity for global investors to invest in new coins. Digital currency transfers into project coin offerings are a global initiative in many cases. If an IPO account was receiving hundreds of wire transfers in a matter of minutes, the bank account would likely freeze the assets. However, token sales paid for with digital cryptocurrency are always open for operation.

In addition, the United States represents under five percent of the population. An international global availability means a 20-fold increase in available financing base.

3. Token Economy Liquidity Premium

Upon the sale of a token in an ICO, that token has a value. This value sits freely inside a worldwide, 24/7 marketplace.

This varies drastically from the equity in an IPO. In IPOs, it can take a decade in some cases for investments to become exit-capable. Comparatively, tokens can be sold within minutes.

Whether you decide to use or sell these tokens purchased at an IPO is inconsequential. However, the difference between a decade and ten minutes is 500,000-fold. Granted, the potential returns will, in most cases, be far higher in an IPO over ten years.

This token economy liquidity premium allows “shareholders” to participate in new ICOs with those same funds. In turn, faster growth is experienced, and far more fluidity of funds.

4. Impressive Decentralization

For many technology-focused IPOs, companies flock to Silicon Valley. For comparative financial offerings, Wall Street is “the place to be.” However, as token launches can happen anywhere in the world, this need is greatly diminished.

Successful entities can raise funds through ICOs from wherever they are located, and from whoever they want. This destroys the barriers to entry that once relegated success to specific geographic areas. In fact, one of the most successful ICOs of all time, Ethereum, has no physical presence anywhere.

5. The Business Model That Beats “Free”

Massive tech companies such as Facebook and Google provide very valuable, free products. Regardless, sometimes they come under fire for profiting billions while early adopters receive simply their free service.

Conversely, the launch model present in ICOs offers a far more feasible solution. With a coin offering, technology companies and open source projects can spread their wealth. This process also helps to align user bases who can profit from the success of the business.

A business model that beats “free” is the holy grail of opportunity for investors. Users making money from being at the early stages of adoption is an excellent incentive for ICO investment.

6. Instant Buy-In, No Middleman

There are no blocks or intermediaries that exist between coin buyers and sellers. Once a cryptocurrency is created and launched, it can immediately be sold on the crypto market.

The advantage of this is a fast, efficient process for both businesses and those investing in them. With initial public offerings, the process of buying stock can only be described as a labor-intensive process. Comparatively, buying into an ICO is as simple as obtaining the proper buying currency and waiting for launch.

Useful Features of Successful ICOs

Initial coin offerings have many incredibly valuable features. First and foremost is utility. Many ICO experts agree that a coin offering should provide more utility than simply an asset bought and sold on exchanges. This utility separates successful ICOs (such as those below) from failed projects, of which there are plenty.

Several analysts have found a common thread in community support. ICOs that remain active in discussions tend to receive a stronger level of success than those who stay quiet.

Initial coin offerings are a significant threat for scams. There are documented examples of ICOs being used to prey on under-informed investors. As a result, firms that receive independent audits serve to communicate trust to potential investors.

Finally, if you can’t get your word out to the masses, is it even being said? A strong marketing, public relations, and communication strategy are crucial to ICO success.

The Most Successful ICOs

Some of the most successful initial coin offerings have raised billions of dollars for their relevant causes. While many successfully-funded ICOs are in the tech sector, there are many opportunities for all businesses. Below are five of the most successful token launches thus far.

  • Ethereum was one of the first initial coin offerings. Unlike its grandfather Bitcoin, they’re more than just a digital currency. Ethereum is a blockchain tech used to develop decentralized apps via smart contracts.

More can be read about this in their white paper. Their ICO started at $0.31 per coin. In January 2018, Ethereum hit a high of over $1,400 per coin. Try finding an IPO with those returns.

  • IOTA ran its ICO with the concept of blockchain integration into Internet of Things technology. Their decentralized transaction ledger provided a no-fee, scalable environment.

More information can be found in their white paper. One of the first ICOs, they raised close to a half-million dollars for their project. At its high, IOTA provided early investors with a return of over 332,000 percent!

  • Stratis is a platform providing compatibility with programming languages, letting business test, create, and deploy apps. This can all be done without needing to maintain or set up their own development environment (see their white paper for more). Their ICO raised close to 1,000 BTC, which at the time was worth $675,000, and is currently worth over $8 million.
  • EOS is a popular cryptocurrency that raised over $185 million within five days of its ICO launch. This makes it currently the largest ICO ever. Per their white paper, EOS claims to be a viable alternative to Ethereum’s network. They provide many different tools for business, operating seamlessly on the blockchain.
  • NXT, formerly known as Antshares, has gone through two rounds of token sales. This service, with connections to both Microsoft and the government of China, started at 3 cents in its first ICO. From October 2015 to January 2018, their coin value rose to $180. NXT, whose white paper explains its offering, is one of the most substantial ROI coin offerings in existence.

Our Final Word

When seeking funding for innovative business opportunities, ICOs are a creative, new approach. While there are potential downsides to initial coin offerings, there are also many advantages. With the potential for massive returns from passionate investors, they’re a perfect crowdfunding vehicle.

Are you interested in business financing? Fora Financial provides funding to small businesses. Complete the form below for a free quote.

 

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Editorial Note: Any opinions, analyses, reviews or recommendations expressed in this article are those of the author's alone, and have not been reviewed, approved, or otherwise endorsed by any of these entities.

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Fora Financial is a working capital provider to small business owners nationwide. In addition, the Fora Financial team provides educational information to the small business community through their blog, which covers topics such as business financing, marketing, technology, and much more. If you’d like to see a topic covered on the Fora Financial blog, or want to submit a guest post, please email us at [email protected].