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Getting to Grips with ICOs: What Are They?

 3 min read / 

An initial coin offering (ICO) enables startups to raise capital by offering investors tokens (cryptocurrency) in exchange for funds (typically bitcoin or ethereum). It is similar to crowdfunding in that anyone can take part and purchase as many tokens as they wish. These funds are then used by the company to develop their blockchain. Successful blockchains make their associated coin more valuable, this is what investors are banking on.

ICOs have become notorious for their lack of security regulation. In theory, anyone can host an ICO and raise capital, without their investors having any guarantees (such as equity in a company). However, others claim that ICOs are simply a new and inclusive way of raising capital, and that if a company declares bankruptcy equity in the company is also lost.

The majority of ICOs raise capital prior to launching (before they release their blockchain), and so the risk associated can be huge. But, for example, those who invested in the ethereum ICO have been handsomely rewarded.

Case Study: Ethereum ICO

In 2014, Ethereum hosted an initial coin offering, in which users could purchase coins directly from ethereum’s site at 2000 ETH per BTC for the first 14 days, “before linearly declining to a final rate of 1337 ETH per BTC.” The sale lasted 42 days, ending on September 2nd, 2014. The first twelve hours of ethereum’s ether (ETH) sale raised 3,700 bitcoins within the first 12 hours of launching (approximately $2.3m).

At the time, bitcoin was trading at roughly $700, those who got in early were able to buy ether at roughly $0.35 a piece. Today Ethereum is trading at over $300. These astronomical returns have caught the attention of many, but the void of regulation around ICOs means that anyone can host a one. Many ICOs have doubtful value propositions, so investors should be careful when approaching the space.

Largest Ever ICO

Since the ethereum platform launched, many companies have used the platform for the presale of their tokens. Filecoin, a blockchain-based digital storage and data retrieval mechanism, raised $257m by September 7th, 2017. They raised this on ethereum’s platform.

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The cryptocurrency space is fast-paced and analysis is often over complicated, we at The Market Mogul want to offer a helping hand.

Each week, our round-up will provide there articles, hand picked by our editorial team, as well as the top sources we’re reading from across the web, delivering concise analysis straight to your inbox.

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