After a rough year in 2018, cryptocurrencies are back. In 2018, the combined market capitalization of all the cryptocurrencies dropped from almost a trillion dollars to slightly under $150 billion. Bitcoin, the biggest crypto of all lost more than 80% of its value.
In 2019, cryptocurrencies have become the best-performing asset class globally. This has led to renewed interest in the Initial Coin Offerings (ICO). In this article, we will describe what an ICO and how ICO consulting companies are and what they offer.
To better understand what an ICO is, we first need to understand how the industry began. To do this, we will first look at cryptocurrencies and then narrow down to the ICOs.
In 2008, the world went through the worst financial crisis since the great depression of the 1930s. The crisis was caused by the increased risks that banks took with the goal of maximizing their returns. By 2008, banks realized that most people who had taken the subprime loans could not repay.
This led to panic and the ultimate collapse of Lehman Brothers. American taxpayers were forced to bail out other Wall Street financial institutions like American Insurance Group (AIG), Morgan Stanley, and Goldman Sachs.
At the time, the public hated the financial sector and the regulators. It was then that an obscure person or persons came up with the concept of cryptocurrencies. The person(s) went by the name of Satoshi Nakamoto.
Their innovation was known as Bitcoin, a decentralized currency that was under no authority from any regulators. The currency would be used to make purchases in an anonymous manner. It would also be a store of value among the people who used it.
Obviously, Bitcoin was not popular back then and each coin sold for less than a dollar. This changed when Gawker ran a story about Silk Road, which was a marketplace where people could buy and sell anything.
Silk Road was started by a Libertarian known as Ross Ulbright. To avoid detection, the peddlers using the website used Bitcoin because unlike other fiat currencies, it assured them of privacy. Before it was shut down, Silk Road was valued at more than $5 billion.
As Bitcoin became more popular, people from around the world started to develop alternative coins. To date, there are more than 2000 cryptocurrencies, which are valued at more than $300 billion.
As the cryptocurrencies industry boomed, many people developed an interest in the industry. They were basically using the Fear of Missing Out (FOMO) concept. They were also attracted to the vast amount of money that ICOs were raising.
An Initial Coin Offering is a simple concept which developers use to raise money to fund their projects. To do this, entrepreneurs first come up with an idea and decide on the amount of money that they need to raise. They then start the ICO process – which will be explained below – to raise money, which is usually in the form of fiat currencies like the dollar or other cryptocurrencies like Ethereum and Bitcoin.
ICOs have been associated with IPOs. However, there are many differences. An Initial Public Offering is a process in which companies raise capital to run their businesses. They raise this capital by selling part of their stake to shareholders, who include investment banks, mutual funds, and ordinary investors. In return, these investors benefit when the stock price goes higher and when the companies start to pay dividends. ICOs on the other hand are unregulated and do not involve a lot of intermediaries.
The Initial Public Offering process is relatively complicated. It involves many stakeholders like investment banks who act as underwriters and advisors, lawyers, who advise the management, auditors, who verify the financial reports, and exchanges like Nasdaq and NYSE. The process is long as well.
Before becoming public, the company needs to furnish investors with information about their business. In the United States, the filing that is done at this stage is known as the S1. It basically describes the company, how it makes money, the founding shareholders, and how much money it has made after being founded.
After all this is done, the company goes to a roadshow, where it makes pitches to investors about the business. The goal is to express interest within the investing community before the IPO day. After all this, the company is listed in the exchange that it had decided and investors starts to trade. Some of the biggest IPOs in the world have been the Alibaba, Facebook, Uber, and Softbank.
An ICO on the other hand does not go through all this. I will explain this in the next part on how an ICO works.
Raising money using an ICO is relatively easy and it involves a number of steps.
The first step is to develop an idea of the project that you want to run. It could be an idea of a cryptocurrency or a real physical product. Like in all businesses, you need to carefully assess the idea and find out whether it is viable.
A white paper is a document that describes what the project is all about. This document should be a simple document that explains what your project is, the problem you are about to solve, how you will scale, the road map, the amount of tokens you are raising, how the funds will be used, and the team behind the project. Since this is a complex process, most ICOs use ICO consulting services to do the white paper.
A cryptocurrency token is an entity that has a value specified by the eminent. For example, you can have one token representing one dollar. When you start raising funds, the investors will be buying the tokens.
A website is mandatory when you are marketing an Initial Coin Offering. This is the website where you will share all the details that are necessary for the investors to know. A good ICO website should have the following features.
- It should be easy to navigate. In this, you should insist on a responsive website design.
- It should have a summary of all the details that are in the white paper.
- It should have a summary of the team members behind the project. Their LinkedIn pages are essential.
- It should have the different offers that you are offering.
- It should be well-optimized for the search engines.
- It should have social media links where buyers will follow and connect with you.
- The press coverage of the ICO. Most people will invest in an ICO that has been covered widely in the press.
- A list of partners.
- You should also translate it to a number of languages because ICOs are truly digital products.
There are thousands of ICOs that are launched every month. This is because of the global nature of the industry and how easy it is to start one. Therefore, you need to spend money marketing and promoting your ICO.
The easiest way to market these ICOs is through the internet. Sadly, the biggest online advertisers like Google and Facebook do not accept this type of marketing because of the amount of fraud that is in the industry. Therefore, you need to do other types of PR and marketing such as sponsoring content and ads in the websites that are mostly trafficked by cryptocurrencies enthusiasts. You should also encourage social sharing and email-based marketing. A good ICO consulting services company can help you market the ICO.
Other ways you can market your ICO are: being involved in Quora discussions, being part of an ICO calendar, taking part in forums, sponsoring events.
After doing all this, you now need to launch the ICO. To do this, you need to have an exchange that will list your ICO. Once your ICO is open, the people who bought the tokens during the sale can now exit by selling the tokens in the market. There are many exchanges that accept ICOs but the most common ones are: Coinbase, Binance, and Kraken.
Now that you have understood what IPOs and ICOs are, the following points will give you a brief summary of the differences between the two.
- IPOs are mostly national in nature. This means that only people in a certain country can invest in the company. ICOs on the other hand are international, meaning anyone from any country can invest in them.
- IPOs are highly regulated processes while there is minimal regulation in the ICO space. That is the reason why there are so many ICOs and so few IPOs.
- IPOs are mostly about companies that have been in existence and those that have products already. ICOs are mostly on companies that have not yet been founded.
- In IPOs, shareholders hold real power including that of firing the founder. ICOs are usually not like that. In fact, many ICO holders don’t know the companies founder.
- IPO shareholders benefit when a stock price rises and when companies pay a dividend. ICO holders only benefit when the token price rises.
- IPOs are usually done through fiat currencies like the dollar and the euro. ICOs can be done using fiat currencies and cryptocurrencies.
- In IPOs, companies are required to file audited financial documents before becoming public. In ICOs, these documents are unnecessary.
- IPOs involve a lot of professionals like lawyers and financial auditors. In an ICO, all you need is a programmer.
- The Initial Public Offering process is usually a long one that it can take more than an year to complete. It is possible to conduct a crowdsale within a month.
All people and companies who invest in ICOs want to generate a profit. Since most companies that do ICOs don’t turn a profit, investors have other ways to benefit. They benefit when the price of the token increases. For example, if you bought an ICO token for $5, and then the price rises to $10 because of the demand, you can benefit by selling your token in the market. In this, you will have made a 100% profit. Unfortunately, when the crypto market collapsed in 2018, the value of most ICOs collapsed as well. While the same happens in publicly traded companies, it is usually riskier in the ICOs industry.
Over the years, tens of billions of dollars have been raised using ICOs. Here are the biggest ICOs in history.
- EOS: EOS raised more than $4.2 billion from thousands of global investors. The company described itself as the “most powerful infrastructure for decentralized applications.” However, there have been questions about how the funds were used.
- Telegram: Telegram, the maker of the popular chat application raised more than $1.7 billion in its ICO. Experts believe that the company used the ICO to profit after failing to find a viable profit model.
- Petro: Petro was highly promoted as a means for Venezuela to sell its crude oil after being sanctioned by the United States. The ICO raised more than $735 million.
- TaTaTu: This ICO raised more than $575 million to offer what it called a ‘social entertainment on blockchain.’ Not much is known about the company today.
- Dragon: This one described itself as the entertainment token. It raised more than $420 million and has been linked to organized crime.
- The company described itself as the IoT contract & M2M transaction platform based on blockchain. It was backed by Hyundai, the Japanese motor company.
- Filecoin: This company raised more than $252 million from the likes of Sequoia to provide a blockchain-based storage network and cryptocurrencies.
- It described itself as a new platform for smart contracts and decentralized applications. It raised more than $232M and is facing class action lawsuits.
The Securities Exchange Commission (SEC) is the most powerful regulator in the world. While it is not illegal to run an ICO in the United States, people need to know two things according to the SEC.
First, an ICO can be a securities offering. This means that the owners must adhere to the strict laws that govern the securities like IPOs. For example, ICOs that are securities must be registered with the SEC.
Second, SEC says that SECs pose a lot of risks to investors because of how obscure they are. In fact, the SEC has charged many ICO owners millions of dollars. In fact, to demonstrate how risky the ICOs are, the SEC created its own spammy ICO called the Howey Coin.
As described above, ICOs are an easy way to raise money for projects. However, if you are planning to launch one, it is recommended that you do it right. That is where ICO consulting services come in.
ICO consulting services are companies like IFSA Experts, that help ICO owners to run their projects successfully and legally. The companies use their experience in the industry to do a number of things such as:
- Company registration. While you can do an ICO without being registered, it is recommended that you register your entity. To avoid a lot of regulations, it is recommended that you register your company offshore.
- Company structure. The companies will help you create a viable company structure.
- Product consulting. In this, they use their experience in the industry to advise you on whether the product is viable or not.
- Virtual office. If you don’t have a physical office, the ICO Consulting companies will set up a virtual office for you.
- White Paper. As explained, a white paper is a mandatory thing when it comes to ICOs. Writing a compelling white paper takes time. To help you with this, these companies will write for you the white paper within a short period of time.
- ICO website design. Other consulting companies will help you design and develop your ICO website. Since they have been in the business for a long time, the process will take just a few days.
- AML/KYC. You definitely want to run a legal operation. For this reason, you want to have excellent anti money laundering practices. The ICO consultants will conduct this for you.
IFSA Experts is the premier organization dedicated in helping global customers in all matters registration and formation. The company has been in the industry for decades, during which it has served thousands of customers in different fields. When the ICO industry took off, the company realized its potential and since then, its lawyers have been assisting companies launch these products. We are always focused to our customers, who are our foremost responsibility.