If words like cryptocurrency, cryptocoin, bitcoin and blockchain make you fool, you’re not alone. Even the US Securities and Exchange Commission, the agency that aims to “protect investors, maintain fair, orderly and efficient markets and facilitate capital formation,” is struggling to keep up with all the new mechanisms of alternative financing.
The latest craze for financing is an initial offer of coins, an “ICO”, which is a new form of crowdfunding using cryptocurrency. According to Cointelegraph, an online magazine, a cryptocurrency “is a digital or virtual currency designed to function as a means of exchange.It uses cryptography to secure and verify transactions as well as to control the creation of new units.”
The latest craze for funding is an Initial Coin Offering, an “ICO”, which is a new form of crowdfunding using cryptocurrency.
ICO “coins” are tokens issued on a distributed register, or blockchain, which is a platform that supports cryptocurrency. Tokens can easily be traded, but unlike shares, they do not confer ownership rights. Investors are betting that successful products will increase the value of chips.
An ICO imitates a reward-based crowdfunding campaign that uses pre-sales of a product in exchange for a donation to increase working capital. With an ICO, a company builds a community of stakeholders who will benefit from the “purchase” of the product before its manufacture. Tokens become functional units of cryptocurrency if the IOC’s funding goal is achieved and the project is launched.
Unlike public equities, private securities are illiquid; investors can not easily take out their money or trade them in secondary markets. Tokens are extremely liquid. investors can take out their money quickly.
Interestingly, venture capitalists, who have vigorously opposed equity financing, are very interested in IFAs. The first reason is the profits – cryptocurrency investors have benefited from substantial returns. The second reason is the liquidity of cryptocurrencies. Investors can realize financial gains faster than years of waiting for an initial public offering or an acquisition, which are the usual outflows for venture-backed start-ups.
In addition, profits can easily be converted into Bitcoin or other cryptocurrencies on one of their exchanges that carry it. Then it is easily converted into traditional currency via online services such as Coinsbank or Coinbase.
Established venture capital firms like Andreessen Horowitz, Sequoia and Union Square Ventures have invested millions of dollars in cryptocurrency hedge funds. They have invested in all types of blockchain projects.
Since 2016, venture capitalists have invested millions of dollars in all types of blockchain projects.
How do OICs work
A new cryptocurrency is created on a blockchain application platform such as Ethereum or Openledger. The people behind the OIC arbitrarily determine what they think the company or project is worth. The ICO is marketed to the public and, using price dynamics determined by market supply and demand, the network of participants establishes a value for the token. Companies that deliver an ICO are generally at a stage of development comparable to start-ups seeking angel funding.
Similar to a Kickstarter crowdfunding campaign, an ICO usually takes place over a period of several weeks. It is divided into a pre-sale period and a public sale period, with a ceiling of funding that must be reached for the launch of the project. A pre-sale token sales round is restricted to certain individuals or institutions that are placed on a “whitelist” and allowed to purchase coins prior to a public sale.
Only a pre-sale round gives a percentage of bonus coins to participants and sometimes requires a minimum contribution amount. A pre-sale is a way to give momentum to a project and attract the first supporters by guaranteeing them a chip allowance. The public sale period follows and generally lasts longer than the pre-sale period. It is open to all participants who register for the project on its website.
After the pre-sale or public sale period begins, individuals contribute funds by sending Bitcoin (BTC) or Ethereum (ETH) to a designated portfolio address. If the project reaches its funding goal, new cryptocurrency tokens are sent to investors when the coin is launched. If the project does not reach its funding goals, the funds contributed will be returned, just like a Kickstarter campaign that does not achieve its goal.
Once a project reaches its funding goal and distributes newly created pieces, it lists on an exchange – Bitbank, Coinbase, CoinExchange, Coinsquare, CoinEx – where it can be traded live. Holders of the coin can then redeem their interest and new buyers can participate. There are currently more than 50 cryptocurrency exchanges.
According to Mike Orcutt, deputy editor of MIT Technology Review, entrepreneurs have raised about $ 10 billion since the beginning of 2017 through the internal control offices.
Unlike equity crowdfunding, IFAs are not regulated – at least not yet – so that they are not faced with regulating the equivalents of the SEC or the SEC in any way. ;other countries. People who decide to invest in ICOs participate in a high risk business.
However, the SEC began to crack down on ICOs. A few weeks ago, the SEC issued a statement titled “Statement on Potentially Illegal Online Platforms for Digital Asset Trading”, which only suggests what the SEC thinks of ICOs: they are illegal. The position of the SEC is that ICOs are securities and should be registered with the agency as other securities. The SEC should develop regulations for IFAs. Just this week, Massachusetts ordered the shutdown of five internal control offices, claiming that the companies behind them were selling non-registered securities.
Some companies are starting to develop compliant platforms for the issue and trading of “token securities”. To be compliant as an alternative trading system, a platform must receive SEC certification.
ICO and other blockchain investments are too advanced to disappear. However, they will likely be subject to increased regulation in the coming years.