The cash registers seem to be ringing non-stop, with cryptocurrencies ruling the charts across the globe. Everyone seems to be hopping onto the bandwagon of cryptocurrencies, with a steady increase in the number of startups offering their own iterations of these virtual currencies. If you too are a company looking to cash in on this emerging trend, here’s a handbook of how to go about deciding upon the perfect initial coin offering strategy for you.
Startups rely on Initial Coin Offering (ICO) to bypass the rather stringent and often cumbersome process of raising capital, as mandated by venture capitalists or banks. The precursor to staging an ICO is releasing a whitepaper stating what the project is about, the needs fulfilled by the project on completion, estimated capital investment, share of virtual tokens expected to be retained by pioneers of the project, type of money accepted, and the proposed duration for the ICO campaign. The ICO campaign aims to get backers to buy a set number of distributed cryptocoins, with payment made in fiat or virtual currency. Much like an Initial Public Offering (IPO) these coins, also called tokens are offered as shares of the company sold to investors. On successfully achieving its target fundings within the stipulated timeframe, the money is diverted towards initiating or completing the scheme. In case the funding goal is not achieved, the money is returned to the backers and the ICO is deemed to be unsuccessful.
Types of Tokens:
As the name suggests, an equity token, much like an equity share, buys one a level of ownership of an organization and its success. Ethereum-based smart contracts allow startups to issue stock or equity tokens through ICO. Given the low entry barrier, it makes stock trading more accessible to the common man and allows shareholders to assume an active role in corporate governance. This is attributed to the fact that voting can be conducted transparently through the blockchain.
A security is a broad classification that refers to any kind of tradable asset. Through ICOs, investors have access to a wide variety of securities tokens, ranging from coins redeemable for precious metals to tokens backed by real estate.
Ethereum is pegged to be the first major utility token. A utility token allows for enhanced flexibility. In the case of Ether, those things were running smart contracts and code on the global blockchain. Ethereum is also a currency token, as it is used to exchange value. These tokens are also called Network Access Tokens, as they provide access similar to that provided by the network. An example of this application is PrimalBase, wherein the token allows the user access to co-working space.
Reputation and Reward Tokens
These tokens are provided as a marker of reputation or as a reward. Reputation tokens mainly help notify the blockchain that some user or wallet did something special or is someone special. Not all such tokens are tradable. Unlike other token types where liquidity is a major factor, this token relies a slightly different ideology. The value of a reputation token is that you can trust that the person bearing it is who they say they are. The value of these tokens are hard to evaluated, and are mainly intended to be an honorary token in recognition of the immense contribution of the holder.
For any players looking to venture into this highly competitive space, considering these types of tokens and choosing one that most suits their strengths is imperative for sustenance. Having an active developer base and actively engaging cryptocurrency enthusiasts would ensure long-term and lucrative growth, in a domain that has witnessed the death of many a startup focusing mainly on short-term goals of increasing generation of their cryptocurrency. Various governments such as those in China, South Korea and Switzerland have banned ICOs, while other governments are closely monitoring all transactions related to cryptocurrency, given the mercurial rise in their popularity. The irony here is that the more the scrutiny and attempts made by various regulatory bodies to govern cryptocurrency, the more the popularity of this decentralised digital currency would increase, in turn providing opportunities galore for players with the most effective of strategies.