What Is An Initial Coin Offering?

  • Initial coin offerings could be a new way to raise funds for public and private companies – if they're all running on decentralized ledgers.

  • ICOs are appealing to a new type of investors because of their liquidity and accessibility.

There’s been a lot of talk lately about initial coin offerings, known as ICOs. Enthusiasts tout ICOs as the future of venture investing in the blockchain world.

“The precedent we’re about to establish will be the future of the entire sector. VC as an asset class has delivered good returns historically, but they’re locked up for five or 10 years and people aren’t happy with that level of illiquidity.” said Brock Pierce, chairman of the Bitcoin Foundation and managing partner of Blockchain Capital.

Despite that, the idea has its skeptics. We break it down.

Wait, so what is it?

It’s basically a source of funding for new blockchain-based business endeavors. When the decentralized network is created, the startup behind it can sell tokens early in the process for an amount based on what it thinks it’s worth at that stage, all in order to raise money for the continued development of that network or application.

ICOs are similar to any other investment and often likened to IPOs in that the investors hope to make good returns on their investments and in that the startups behind the ICOs are trying to raise money to grow their endeavor. It’s becoming more typical for startups to produce some sort of documentation that describes their background and plan for their initiative, according to Angela Walch, associate professor at St. Mary’s University School of Law and research fellow at the Centre for Blockchain Technologies at University College London.

A new investment vehicle? Big deal.

Revolution by democratization of course. ICOs allow entrepreneurs to raise money from retail investors – so any Joe Schmoe that wants that want exposure to the early stage ecosystem can diversify his investment portfolio. (Okay, not just any interested investor, but more on that in a sec.)

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Janice W McNair 1 year ago Member's comment

Really perfect article for initial coin fund investors for public and private companies.