The "Initial Coin Offering"

There is concern in the market for knowing the new investment models in ICOS. Private Wall Magazine, interviewed Javier Molina Jordá, economist and Master in Financial Markets, co-author of the book, "Blockchain: the Industrial Revolution of the Internet", Managing Director in CoinBest, Madrid, Spain, to know his valuable opinion and his perspectives.

Ruse Martín Galano: What is an ICO in Blockchain?

Javier Molina Jordá: Technological innovation goes, in one way or another, linked to start-ups. This type of companies have stood out in the last 50 years for being pioneers in these developments and they are a very important part of the business ecosystem. However, these projects are certainly new, it is very difficult to find financing in classical financial intermediaries such as, for example, banking or credit companies. That is why they have to look for venture capital in a way to achieve this financing and thus be able to carry out these projects. In these cases, investors take a long-term position (the average is between 4 and 7 years) while the project, clearly defined, is carried out. They take a vote in the company and can, in certain cases, provide services aimed at helping in the management and development of the project. When the company reaches its point of maturity and expected profitability for Venture Capital, they undo their positions and terminate their investment in the company. In these cases, the access to be able to finance, is limited to those funds or people of high capital and knowledge, not giving option to small investors.

ICO (Initial Coin Offering) is nothing more than a financing mechanism for new protocols. In this case, the company or individual issues tokens and puts them on sale to achieve that funding and delivers them against euros, dollars, bitcoins or ethers. The interesting thing about these offers that are made online exclusively, lies in the characteristics and purposes of these tokens. Some can be used to access or use some of the services that the technological development that is going to be financed starts up. That is, to use the Ethereum Blockchain I need the ethers. Other tokens may give economic rights over future income. Others have no tangible value. Here it is important to know very well what the project intends, if there is an economic plan, if it has meaning and usefulness, etc.

Unfortunately there have been many cases of scams and no project, which have ended with a strong loss for many unsuspecting investors. Read the "Whitepaper", meet the team, follow what the community says, etc. It will help to avoid part of these risks.

In any case and despite the fact that the type of investor in an ICO is not the same as that of a Venture Capital, the advantages it presents go through the existence of a secondary market (Exchanges) where those tokens can be quoted. This means that there is liquidity and that, depending on the evolution of the project, a future revaluation can be attended. On the contrary, unless expressly confirmed, the holding of tokens does not imply ownership. That is, having a token does not grant voting rights or participation in the share capital. Likewise, what ICOs allow is the access of everyone to be part of a project of these characteristics.

In the case of eToro, which has a platform for the purchase and sale of cryptocurrencies, those that can be contracted have already been transferred to that secondary market, minimizing many of the existing risks in an ICO.
RMG: What is the difference between ICOs and IPOs?

JMJ: In the case of the IPO (Initial Public Offering), we talk about companies that go public (organized official markets) and offer their shares in exchange for money. In this case the investor if he acquires the property based on the number of titles he acquires. You have voting and participation rights in dividend distribution or pre-emptive subscription rights in an extension.

As we have seen, ICOs do not have these characteristics and they also respond to the financing of technological projects exclusively to date.

RMG: Are there different types of ICOS?

JMJ: There are different types of projects that can be financed through an ICO. For example, there are categories ranging from protocols on art to entertainment, including cryptocurrencies, games and casinos, banks, health or sports.

REASONS WHY AN INVESTOR IS WILLING TO INVEST IN AN ICO

Once the project is understood very well, the necessary "research" has been carried out, the community has been consulted and the management team is known, the interesting thing is to be able to invest in this project from amounts that begin in the 100 dollars and where we will have a secondary market. That is, the investor can participate in projects that were previously impossible to access, wherever they are and whatever the reference sector.

CHARACTERISTICS OF A QUALITY ICO

First, we must make sure that there is a serious and real project. The "Whitepaper" must have a clear explanation of where we are investing our money, the benefits of acquiring the token, the names of the people who make up the team, the number of tokens that are issued and how they are distributed, etc.

If the project has nothing to offer, if the search for investors is encouraged or if they offer guaranteed profits ... .there is a need to run away from that ICO because it looks very fraudulent.

RMG: Which are the most successful?

JMJ: Ethereum raised about 15 million dollars during its launch campaign, with a pre-mining system, in the summer of 2014. In this case, listing in an Exchange took a year because it wanted to avoid speculation as much as possible . Today the ETH is the second cryptoactive by capitalization and one of the most successful projects.

RMG: Is regulatory regulation of this ecosystem necessary?

JMJ: It is necessary to separate good practices from bad ones. Regulation is necessary insofar as it does not impede the development of technology or new forms of financing. We need more training and greater fraud control and that has to be the path that the regulator takes if we want to promote greater future development.

RMG: What are the future prospects?

JMJ: We are at a very interesting point where the treatment of the ICOs and the tokens that are issued is being defined. It is a worldwide development that affects all countries and markets. However, the path is started and there is no turning back. My personal idea goes through a tokenization of many assets, the triumph of cryptoeconomics as a new model and the democratization of technology as a way to improve the life of all humanity.