The Brief History of ICOs

openledgeraps (39)in #blockchain • 5 years ago (edited)

This article was delivered to you by OpenLedger, a blockchain development company.

Just three short years ago, there were barely a handful of ICOs, yet 2018 alone has brought us 1247 in total.

One of the first ICOs to go live back in 2014 was Ethereum, which has gone on to be one of the most successful blockchain-based cryptocurrency implementations. The buzz around the success of Ethereum, which raised $16 million, made the industry take notice of a new way technology companies can seek funding. What are some of the causes of the incredible growth in the number of ICOs, and will it continue? Let’s take a look at the brief history of ICOs and frame how that might inform their future.

Before the ICO

Prior to 2014, if a technology company wanted to attract investors, they had to come up with a sound business plan, proof of concept and functional prototype, and then go before investors and venture capitalists (VCs) to compete for a pool of private investment funds.

Another avenue was to hold a crowdfunding campaign on sites like Indiegogo or Kickstarter. This allowed firms to raise capital from the public, in the form of individual investors, by getting their buy-in at the idea stage. This was controversial and resulted in many high-profile fraud and deception cases.

In the past, the only way private, individual investors would invest in a company was after an Initial Public Offering, or IPO. This only would happen after private investors had done seed funding and gotten the company started, and the company grew to a certain size and market share. Even then, many questioned what requirements were needed for a successful IPO.

The key is that regulations keep private investors protected from loss until a company is established enough to mitigate lots of the risk. Crowdfunding took those protections away, causing many to lose money.

But there’s something compelling about actual consumers and end users driving the funding of a product as opposed to a small group of private investors. This ostensibly can lead to shorter development times and more creative innovation. The blockchain and cryptocurrency markets took notice, and the idea of the ICO was born.

You might also like:
DAICO vs ICO: Differences Explained

ICO Infancy

Mastercoin held the very first ICO in 2013, an idea hatched by entrepreneur and Bitcoin enthusiast J.R. Willets. He actually published a white paper in 2012 called ‘The Second Bitcoin White Paper,’ describing the utilization of the network as a protocol layer on which other solutions can be built.

The idea was very much inspired by Kickstarter. Combining the direct-to-consumer investment approach with decentralized blockchain technology just seemed like a perfect fit. And it took off from there, with three ICOs in 2016, and 876 in 2017.

But some of the same problems with fraud have plagued the ICO ecosystem, with bad actors taking advantage of people’s enthusiasm and selling a ‘fake’ or over-hyped project that was little more than empty promises. Many people have lost money, and authorities around the world started taking notice.

In fact, recently the first US Securities and Exchange Commission (SEC) led the prosecution of an ICO fraud case resulted in a guilty plea. In all, there have been hundreds of failed ICOs and fraud cases; and of around 2,000 coins, a little over 1,000 are still active.

“Just because you call something a blockchain or an ICO, that doesn't mean you aren't subject to normal laws.”

Juan Benet,
Founder, CEO at Protocol Labs

Success in Many Cases

But the story of ICOs is not all doom and gloom. There have been many successful ICOs, such as EOS at $4.1 billion, Telegram at $1.7 billion, and Houbi at $300 million. Investors at large are becoming much savvier in spotting frauds or unprepared companies. Many are not outright fraud: they may have a good idea but not yet have the chops to deliver on their promises.

When deciding what ICOs to invest in, people are looking at a whole picture: the team assembled, quality of the white paper, frequency of updates, steady development progress and company transparency.

Such an exacting approach has created a steady decline in the number of successful ICOs but arguably an increase in the quality of the projects that are making it through. In fact, the ‘bubble’ for ICOs has been discussed for over a year now, and it seems that it’s coming back to a realistic level.

You might also like:
What Is ICO Advisory and Why Your Project Needs It

The Future of ICOs

While authorities around the world are grappling with how to deal with ICOs, the normalization of the marketplace will work in their favor. The initial reaction of many governments was to ban or severely restrict ICOs as China, Korea and Japan have threatened. But recently governments have softened their stance and recognized the future place for ICOs.

That being said, regulatory agencies like the SEC and counterparts all around the world are drafting regulations that will control the way ICOs are applied in the interest of protecting individual investors. Many are realizing that self-regulation is a key way for the blockchain and cryptocurrency industries to control how they are regulated while moving forward.

Though the ‘wild west’ time is over for ICOs, there will still be plenty of them, and eventually only high-quality projects will make it to later stages. The history of the ICO is short for now, but expect that story to continue to be written in the coming years.

Openledger delivers the blockchain services and custom blockchain development that powers real business transformations.

Create new business tools based on revolutionary decentralized networks that change your industry forever.