Summary: Initial Coin Offerings are similar to a crowdfund. Blockchain startups offer investors the opportunity to invest in their projects by purchasing a part of their cryptocurrency in advance. In exchange for financing the project, investors receive digital tokens (cryptocurrency) at a very low purchase price. The investors expect the value of the received tokens to rise over time, with the option to sell the tokens on online exchanges like Bittrex or Poloniex at a higher price than the initial purchase price. ICOs usually take place in the early phases of a project. The entrepreneurs use the funds to continue developing their products and launch it. Nearly all funds come in the form of Bitcoin, although Ethereum, Bitcoin’s main competitor, is starting to get a considerable size of the ICO market. Here’s how Initial Coin Offerings typically work. Let’s imagine that a Blockchain startup creates a new product (application) on the Ethereum Blockchain. The Blockchain startup determines the value of the product, based on what they think the product is worth, and how much money they need to raise to build and scale their idea (proof-of-concept / MVP). This value, however, doesn’t remain fixed and changes according to the dynamics of the market. In other words, the market supply and demand set the price instead of a central authority or government. To get a better understanding of how ICOs works, imagine that I propose creating a competitor to Netflix called Webflix. It does everything Netflix does, except it’s open source and decentralized, meaning no company or central authority controls it, data is peer-to-peer, similar to BitTorrent. At Webflix, membership can only be purchased using tokens I create called Flix Coins. To fund my Netflix competitor, I pre-sell these tokens to the public. People buy them because if they jump on the bandwagon early, they can either resell the tokens for a higher value or trade them for membership at Webflix for pennies on the dollar. That’s if my Netflix competitor takes off. If it doesn’t, they end up with a bunch of worthless tokens. So, in a way, ICOs took the best from both Initial Public Offerings (IPOs) and Crowd Funding and created a decentralized system that has no single point of failure or middle man being in control. Is that a good thing? To answer this question, let’s try to understand how IPOs and Crowd Funding work. http://ianbalina.com/hacking-venture-... Website: http://ianbalina.com Instagram: https://www.instagram.com/diaryofamad... Twitter: https://twitter.com/diaryofamademan Snapchat: https://www.snapchat.com/add/diaryofa...
