Finances & Money

Crowdfunding of the Crypto Era – ICOs

What better way to look at crowdfunding than to relate it to the crypto era. It is an established fact that ICOs – Initial Coin Offerings – pushed the idea of crowdfunding to a whole new level. Estimates put the figures raised in support of ICO projects at $5.9 billion for the period between 2016 and 2018 – an astonishing amount of money put into crypto projects. It’s even more bewildering to find out that most of these amounts were raised in a relatively short time; sometimes within hours.

2017 was the year of the ICOs

We should also note that 2017 really was the year of the ICOs. Some of the reasons could be put down to the performance of the top cryptocurrencies like Bitcoin, Ethereum, and Litecoin. It is in 2017 that bitcoin, for instance, went on a wild ride, rising in value all the way to an all-time high of $20,000 in November. Not to be ignored, ETH too had a year of its own, gaining in popularity and value to hit a top pricing of over $1700 sometime in December.

How did the performance of these coins in the market impact the growth of ICOs in the year? Or was it down to other reasons? These and many others are what this article is setting out to examine.

Read on to find out why initial coin offerings (ICO – was the most searched crypto-related word in 2017) were that big in the last few years of the crypto era.

Why we say ICOs is the crowdfunding of the crypto era – the math and the facts

Initial coin offerings have one advantage over Crowdfunding; they offer the supporters a token that has a value attached to it. If the coin’s value appreciates over time, then an investor is assured of a profit. Most of the time, these ICOs have had huge returns for the initial backers, attracting even more people to ICOs.

Do you want to read about the best ICOs of 2017? Check this out for everything you need to know, including ICO regulations:

Here is a glimpse of why we say ICOs have been popular as a means of raising capital for cryptocurrency projects.

Billions poured into ICOs- total amounts raised

Throughout three years, starting from the beginning of January 2016 up to mid-February 2018, a total of $5,940,557,886 (that’s close to $6 billion) has been raised in various coin offerings. In 2016, when ICOs began to catch on, a total of just $95, 181,391 was raised from 45 ICO projects. The top ICO then was Waves, which raised $16,436,095 during its crowdsale.

In 2017, ICO projects raised a total of $3.8 billion when a record 211 projects undertook initial coin offerings. The top ICO of 2017 according to stats at was Hdac which raised a staggering $258 million in its coin offering. Filecoin followed closely with $257 million and Bancor netted $153 million in one of the most successful ICOs in 2017.

The trend hasn’t slowed down at the beginning of 2018 on a high note. This is just February, but already 39 ICOs have had their coin offerings raising a growing $965 million. If the trend continues, then it is safe to assume that 2018 will witness record amounts raised by ICOs. Envion and Cryptereum top in 2018 so far with $100 million and $50 million respectively. These amounts dwarf anything raised by VCs or mainstream Crowdfunding.

Power of Bitcoin prices and Ethereum’s Smart contracts and dApps

You can’t wish away the fact that part of the reason ICOs did so ever well can be narrowed down to the two leading cryptocurrencies. Bitcoin had a stellar 2017, overcoming a mini-crash to surge to mindboggling prices. The perceptions of investors about how profitable it was to put money in crypto pulled so many people to ICO sales. From trading at under $1000, bitcoin rose to hit $20,000 at one point.

But perhaps the biggest contributor was Ethereum and its Smart Contracts and dApps. Most of the crypto projects are built on Ethereum’s Virtual Machine. The platform allows anyone who can code using its Turing complete language to build a dApp. That is exactly what has happened and will with several platforms now offering what EVM did in 2016 and 2017.  

Are regulations going to slow ICOs down?

Most probably yes –in the long term ICOs will be regulated.  

2018 has so far seen a reduction in the hype and aggressive social media campaigns by ICO teams. Statistics suggest that ICOs are still the preferred method of funding cryptocurrency start-ups.

Classification of ICO tokens as securities and assets has set the stage for increased scrutiny and possible taxation challenges. For example, the U.S Securities and Exchanges Commission has issued a stern warning to all ICOs that they must be within the law, especially with regard to Anti – Money Laundering (AML) and Know Your Customer (KYC) regulations. A clear statement of intent was sent when it froze the assets of AriseCoin last year.

China’s outright ban

It is clear that although ICOs may have driven funding of crypto projects to the moon, the unfolding scene did not go unnoticed by the world. Especially those world governments have been concerned which, to say the least, are out to institute regulations towards the ICO ecosystem. As we speak, China has banned all ICO activities in the country, threatening legal action and asking companies to refund ICO investors.

Other countries around the world are also in the process of drafting regulations, all aimed at protecting the public against fraudulent schemes masquerading as crypto projects.  What remains to be seen is whether these regulations will impact cryptocurrency investments going into the future.

Though not part of the regulatory bodies, social media giant Facebook has also imposed a ban on all cryptocurrency ads on its platform. If we take this against the backdrop of public protection, then it is unlikely ICOs will be the same heading forward.

to sum up…

Initial coin offerings remain a popular way to raise funds for cryptocurrency and blockchain projects. Judging by what we have seen so far in 2018, some people believe we are yet to see the full potential of ICOs. Nevertheless, everything could still come to nothing if regulations stifled any sort of space for ICOs to operate. Till then, as an investor, remember the wise adage: do not put all your eggs in one basket.

About the author

Susan Paige

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