Essay Sample on Initial Coin Offering - Fundraising Method for IT Startups

Initial coin offering lets a startup raise capital from multiple sources. Unlike in classical investment where the firm issues shares of ownership, the new firm sells digital tokens that have been produced by blockchain technology. This transformative strategy to fundraising enables consumers to benefit directly from the new technology as compared to classical investment. Blockchain technology was implemented in Silicon Valley. The technology offers a healthy decentralization and a powerful security to investors across the globe. IT startups are now able to release digital tokens and coins that are made available at a discounted rate before the new company is launched. The purchases digital tokens and coins enable the investors to use the product when it is launched. ICO technology is an easy and quick method of fundraising for the IT startups. ICO is a complementary source of funds for the early stages of IT startups. The blockchain technology also provides the best ways for the Naviaddress platform to resize its key technology development strategic objectives and core usability features such as decentralization, immutability & integrity, openness, and the user empowerment (Blockchain, 2017).

ICO is one of the best financial innovations produced by blockchain technology. The technology uses multiple computers and revolutionary software to tamper-proof the record system. Majority of the startups that attract investment through ICO technology, they use blockchain as a central business framework. Blockchain tokens enable its users to earn money if they accept not to block online ads. The startup may give token buyers early access to the technology by distributing them in ICO. If the goods and services pick up, investors can sell their tokens on secondary markets. ICO technology helps the startup raise capital without ceding any control to venture capitalists or private investors. The technology also reduces the paperwork burden of an equity initial public offering.

ICO technology has proved to be the best option for investors to attract invest, for the record, the most famous technology is Ethereum. In 2014, Ethereum raised a sum of $18 million by selling blockchain tokens that facilitated online contracts. In June 2017, Ethereum blockchain tokens had reached a market gap of $35 billion and it continuous to multiply rapidly. Dozens of blockchain startups have also launched ICO, issuing tokens and coins to investors and hence growing the value to millions of dollars. Tezos is also a blockchain startup; it raised $280 million within two weeks. ICO technology has transformed from various industries, financial services to online tickets and it offers different types of currency (Mougayar, 2016).

With an increased speculators demand for the rapid expansion of blockchain technology, the worlds cryptocurrencies have grown about nine times within one year. By surpassing $100 billion, ICO technology is the invention of the moment. It is being touted as a new form of corporate financing by the renowned venture capitalists such as Fred Wilson of Union Square Ventures and Chris Dixon of Andreessen Horowitz. The growth has attracted other companies that are not centered on blockchain technology. A message service that was founded in 2009 has planned to conduct ICO technology within 2017 hoping that blockchain tokens will encourage gaming and interpersonal payments on its platform. According to the research contacted by Smith and Crown firms, it indicates that many firms completed the transformation process to ICO technology in 2017 and more are still in the process of transformation. The report showed that 30 startup firms had raised their ICO gains to about $540 million.

IT startups can benefit greatly from blockchain technology because ICOs are token sales. Investors purchase the right to participate in the new company by buying its goods and services immediately they are available or buying cybersecurity services and data storage with the new company. Some coins and tokens may give the investor future profits, or ownership of shares and the stakeholders are more kin on the digital stock certificates. Investors normally speculate that the value of the tokens and coins could rise, or fall over time as they are tradable on the secondary exchange.

Despite ICO technology has proved to be becoming hugely popular, there are critics of the strategy. It is alleged that the market is frothy, there are no regulation and standards to govern the market and this poses a problem for both startups and investors. In a classical investment, a company cannot sell its shares without exchange commissions and security approval. This enables the company to disclose substantial details about the businesss potential and prospective risks. These requirements are not available in ICO investment which makes them vulnerable to abuses.

Despite no ICO fraud investigation has ever been reported, blockchain stakeholders regularly warn each other in their online discussion groups against dubious offerings. This has enabled some IT startups to issue token and coins even though the framework of their business is a long shot at the best.

Most fiscally sound and legitimate ICOs poses threats to their investors as well. Tokens and coins look like classical securities since they enable startups to attract investors cash while holding out the potential for the profits. Selling security without the approval of SEC violets the federal law and in future, token and coin sales in a similar way they are done today since there will be regulatory constraints. If regulator finds out that the tokens and coins are insecure, the internal revenue service and the REC will impose sanctions on the issuers. This will as well enable investors to sue startups if their tokens become worthless.

IT startups are being helped to stay on the regulators good side, the best token exchange involves predictable prices, clear relationships between tokens demand and their prices. Startups should be transparent about sharing of the software code that underlines the tokens.

In conclusion, if regulators find ways that encourage ICO, it may offer opportunities to startups with limited means. ICOs opens up the entire world enabling anyone to become an investor and judge products and services delivered to the public. Blockchain technology has raised the possibility that investing in a startup may become democratic and easier in the future.

References

Blockchain. (2017). IOC PRESENTATION. DOMRAIDER, 2.

Blockchain. (2017). The new digital addressing platform. Naviaddress, 24.

Mougayar, W. (2016). The Business Blockchain. New Jersey: John Wiley & Sons.