The First ICOs - A History of Crypto Fundraising
For the last several years, ICOs have been the mechanism of fundraising by companies who are selling their cryptocurrencies as a way to invest in their projects. Cryptocurrencies created by companies for raising funds, whether an idea or a developed product, usually come with a promise of a good return on the initial investment, and could even include bonuses such as the ability to purchase or participate in the company’s product or service with little or no fees as a reward for being a participant in their ICO.
With the crypto markets consistently doubling in value every six months, until 2018, it made a lot of sense to invest in cryptocurrencies. Many people had gained from these market conditions, quickly doubling their money, and in some cases seeing their investment grow by over 1000%, to then turn around and re-invest in the next project of interest to them.
Although many people have made gains in the cryptosphere, many have not, or even worse, been scammed out of their original ‘investment’. Rookie investors have been sorely taken advantage of, with over 90% of the ICOs in 2017 having never delivered on their product, or were outright scams from the start. The projects that did deliver, however, were so profitable for ICO purchasers that the other losses didn’t even matter. It was a roll of the dice.
In 2018, the exact opposite has rang true so far. The market has not doubled so far this year; returning to mid-2017 levels, or an 80%, or more, collapse - which has happened before, and for hard-core crypto investors is no big deal. Several Top 100 coins are down over 90% or more from their end-of-ICO price, and investors who expected to continue quickly selling off for high profits are now left in a HODL position, or ‘holding on for dear life’, waiting for their coins to make gains in the marketplace.
Despite an incredibly bleak present situation, long-term outlooks are higher than ever. More and more companies are entering the crypto space, tokenizing their projects, and seeking funding from the community. Regulations have passed in most countries to give more legitimacy and protection to people. Fewer projects are built by a couple friends in a chat room, and more projects are created by established organizations with several full-time employees, marketing teams, advisors, and working capital. If we learn from the mistakes and carelessness of the past and take note of the best ICO projects and their blueprints, 2019 looks extremely promising.
Let’s take a deeper look into how we got to this point.
The first ever ICO was Mastercoin in 2013 by J.R. Wilett. The project allowed users to create their own custom currencies using a protocol built on top of the Bitcoin blockchain. He wrote a white paper and managed to raise $500K USD, making this the first ICO ever. After that, it was an Eureka moment, and others began writing white papers with coins and tokens attached to their development. Mastercoin still exists today, but has been renamed Omni.
The exact timeline of ICOs after that was not tracked for a while, but the biggest splashes in 2014 were MaidSafe, which hauled in $7 million dollars, and Ethereum, which made $18 million dollars - and it escalated from there.
In 2017, ICOs like Tezos, Bancor, and Status were pulling in over $100 million each. The start of 2018 saw even further astronomical gains. Telegram raked in $1.7 billion dollars. The Petro (Venezuela’s new national currency) took in over $700 million dollars. But the reigning and defending ICO champion is EOS, closing their year-long ICO with over $4 billion dollars.
Major crypto projects are now attracting real investors with massive wealth, who are gobbling up massive amounts of crypto tokens, making decentralization little more than a marketing gimmick.
Decentralization isn’t always important, contrary to what many crypto-purists believe. If it is important to you that the community controls the project, you will need to research your prospective ICO to see if there was a private pre-sale and what amount of cryptocurrency was allotted to early investors. If only 1% of the coins were sold in pre-sale, that’s a very acceptable amount of centralized wealth. If the majority of coins are sold to VCs and angel investors, then that project may not be what you are looking for, if a community led project is important to you.
While at the beginning of the ICO era just having an idea for a project was good enough to run an ICO, now companies are expected to have an MVP or minimum viable product; or at the very least, a scaled-down version of their big idea before launching an ICO. This proves that they are serious about the project and are not trying to pull an exit-scam.
A working prototype is a normal standard before asking investors to invest in any company, and more ICOs are working in this direction, in order to complete a successful ICO.
Interesting Facts:
● Average returns on ICOs in 2017 (unfortunately, the latest statistics show that these days are over)… https://www.businessinsider.com/ico-mangrove-capital-average-returns-crypto-icos-2017-10
● https://www.bitcoinmarketjournal.com/top-icos-2018/ shows some nice explanations of the current top-grossing coins this year.
● A beautiful infographic visual explanation of the history of ICOs worth looking over. https://blockchainhub.net/blog/infographics/history-and-evolution-of-icos-infographic/
● A sobering realization that wisdom must come before greed - yet it never does. https://www.coindesk.com/over-half-of-icos-fail-within-4-months-suggests-us-study/
● If a coin elects not to do an ICO, the other ways to distribute their tokens are to perform an airdrop to holders of other tokens (like what Bitcore did with Bitcoin holders), or to simply make them mineable and let people mine them.
● The over $100 million dollars lost to ICO scams still pales in comparison to overall profits. https://ethereumworldnews.com/consumers-lose-100-million-ico-exit-scams/
● Many very powerful blockchain projects saw no need for an ICO or community funding, nor a utility token to use their product. Big players projected to be dominant in the blockchain market who are not creating any tokens are R3’s Corda and IBM’s Fabric, among others. Further explanation can be found here: https://decentralize.today/your-dapp-doesnt-need-a-token-1447375d9c67