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I started writing up this article with the noble intention to:
Covering these two reflections in a nice, brief Medium-post turned out to encompass a larger scope then I initially intended. Why? Well, when it comes to ICOs, I believe that in order to thoroughly understand where we ought to be going, it is imperative to understand where we actually come from and why such a shift in mindset is needed in the first place.
That being said/written, I have decided to divide the article in two parts. Part I will cover the core of what an ICO is and what its pros and cons are dependent on who’s asking. It will shed some light on the very first ICOs, even before the great Ethereum token sale. As it turns out, some of these are even omitted on most sites. To ensure that the future blockchain generation gets their facts straight when they take their Bitcoin exam, I decided to put them back nicely to where they belong: crypto history. Part I’s concluding section provides a visualised deep dive in all the exciting token sales that took place between 2013 — 2019. And yes, how some of them went rogue.
Finally, if and when (hopefully someday) the bell rings to notify me of the 300th clap on this first piece, I will unveil part II: the next generation in crypto funding and a couple of my thoughts on that. Update: Part II can be found here:
In the meanwhile, best wishes for the new year and I warmheartedly welcome any claps and follows and shoulder pats and additional information that makes the world of blockchain and crypto a better place!
An Inital Coin Offering — in some cases also referred to as Initial Currency Offering — is a type of funding mechanism typically used by and for cryptocurrency projects.
The best way to look at it is actually by seeing it as some sort of a combination of:
Just to make sure everyone is still following, I’m happy to include the description offered by our friends at Wikipedia:
“In an ICO, a quantity of cryptocurrency is sold in the form of “tokens” (“coins”) to speculators or investors, in exchange for legal tender or other cryptocurrencies such as Bitcoin or Ethereum. The tokens sold are promoted as future functional units of currency if or when the ICO’s funding goal is met and the project launches. In some cases like Ethereum the tokens are required to use the system for its purposes.” (source: Wikipedia)
To get a good understanding of ICOs, it’s recommended to be aware of some of the advantages and disadvantages.
5 Advantages of doing an ICO as a company
5 Disadvantages of doing an ICO as a company
10 Advantages of participating in an ICO as an investor
10 Disadvantages of participating in an ICO as an investor
Source: Own research + honorable mention: 1) “Inclusive FinTech: Blockchain, Cryptocurrency and ICO” — Book by Lee David Kuo Chuen, Low Linda, 2018; 2) Introduction to ICOs — Reftoken.io
2013. BAM! After quite silently working on his idea for two years, this guy J.R. Willett pops up on the bitcointalk forum explaining a supplementary protocol to Bitcoin with built-in support for a.o. custom tokens, a distributed currency exchange (think DEX), distributed betting (no need to trust a website to coordinate bets), smart property tokens, and more! In brief, a protocol — called “MasterCoin” — that would leverage the existing Bitcoin blockchain by adding additional features and possibilities to it.
Obviously, Willet needed to fund his idea so he kindly asked for some BTC donations here and there (sounds familiar, right?!). In order to motivate potential investors in actually contributing, he also added that several features inside the protocol would only be available to those actually owning MasterCoins. Et voilà, wise mister Willet introduced us not only to what was coined afterwards as the first ICO, but to the first utility token as well. Now that’s getting two sons in law with one daughter! (my fancy way of saying “killing two birds with one stone”).
See Willett making his mark in crypto history in the video below; it should start automatically at 4min30sec:
Willett: “If you wanted to, today, start a new protocol layer on top of Bitcoin, a lot of people don’t realize, you could do it without going to a bunch of venture capitalists and instead of saying, hey, I’ve got this idea, you can — you’re familiar with Kickstarter I assume? Most of you? You can actually say, okay, here’s my pitch, here’s my group of developers — there’s a lot of developers in this room. If you get a bunch of trustworthy guys together that people have heard of and say, okay, we’re going to do this. We’re going to make a new protocol layer. It’s going to have new features X, Y and Z on top of bitcoin, and here’s who we are and here’s our plan, and here’s our bitcoin address, and anybody who sends coins to this address owns a piece of our new protocol. Anybody could do that. And I’ve been telling people this for at least a year now because I want to invest in it. I don’t have a ton of coins, but that’s where I want to invest my coins. And I’ve yet to find somebody who wants my coins. Does anybody in this room want my bitcoins because I want to — ”
Total raised: US$600K
Fun facts (& thank you Eric Wall for writing a whole Twitter feed about this)
Unlike how most ICOs market themselves, Willett was actually super transparent (what a delightful contrast!) in listing and communicating the risks of investing in his ICO. Read for yourself in the excerpt below:
NextCoin (#NXT) is a peculiar second when we talk ICOs. On 28 September 2013, the further anonymous Bitcointalk.org member BCNext created a forum thread announcing the proposed launch of “Nxt” as a second generation cryptocurrency. He asked only for very small bitcoin donations in order to determine how to distribute the initial stake. A couple months later, on 18 November 2013, the fundraising for Nxt was closed. The initial coin offering “successfully” — as it wasn’t the objective to raise tons of money — collected 21 bitcoins that were worth roughly USD3,000 — US$17,000 at the time (depending on the exact timing you take as BTC experienced a little surge in the period).
Today (early January 2019 as of the initial writing), NextCoin hoovers somewhere just outside of the top 100 on coinmarketcap at a valuation just under US$30M.
Total raised: US$16.8K
Ranked 339 today on Coinmarketcap at US$6M, CounterParty (#XCP) is often even omitted from the list of pioneering historical ICOs. However, CounterParty is actually the 3rd ICO ever, so I would argue that still deserves a special place in this introductory list.
Simply put, XCP is used to provide functionality where it isn’t technically possible to use BTC. For instance, XCP is the currency used to pay for the execution of all smart contract code (whereas Bitcoin by itself originally has no such smart contracting possibility). More generally, XCP represents stake in the Counterparty protocol, and is the voting currency for changes to be decided on by the community.
If you want to know more about it, the site explains it better than I do:
Noteworty: YouTube video on CounterParty and the Asset Revolution with Chris DeRose at Coins in the Kingdom 2014:
Total raised: US$1.8M
MaidSafe might seem like a strange name at first. But it actually just stands for Massive Array of Internet Disks, Secure Access for Everyone. So don’t go complaining about the abbreviation! The weird name didn’t hold it back from raising a considerable amount of funds back in the days though. #MAID raised a US$7M equivalent in funds in its token sale.
Standing on the shoulders of giants, the SAFE (“Secure Access For Everyone”) network hoped to (and is still working today towards) combining the features of history’s famous decentralised networks the likes of Napster, Freenet, BitTorrent, and Bitcoin, and it aims to provide the following features:
The SAFE network ultimately wants to “create a secure, autonomous, data-centric, peer-to-peer network as an alternative to the current server-centric model. For more info I kindly refer to the Coincentral article.
Today, it proudly holds a top 100 position on coinmarketcap, worth around $US64M at the time of writing. As you can see, its price is not only expressed in BTC, but also in OMNI (i.e. in Willett’s MasterCoin successor #OMNI for the less attentive!)
Total raised: US$6M
In July 2014, this project Swarm raised US$800K in its token sale. However, it is hard to find any information on it. Some more recent endeavours have likely overshadowed the project. For instance Swarm.fund (#SWM), which is a Security Token Offering platform (STO — we’ll talk STOs in a jiffy, well… in part II) that completed its token sale end 2017. Then there is Swarm City (#SWT), where Ngrave’s CTO Xavier Hendrickx currently holds the CTO position as well. Swarm City completed its ICO end 2016.
Total raised: US$800K
2014. Barely old enough to drink by American standards, the Russian “lad” Vitalik Buterin tries raising funds for a new and noteworthy ICO for what he envisions the world’s first zero-infrastructure platform, named “Ethereum”. The token sale raised 3700BTC in the first 12 hours, now who wouldn’t want that?! And as you can see, it can buy you some nice T-shirts!
Total raised: US$18.3M
It took some time before the real momentum kicked in. But by 2017, Initial Coin Offerings were on fire. Suddenly it went so hard that the whole crypto market turned completely parabolic. At some point, basically anyone with a big love for a quick buck could present a digital so-called #whitepaper rambling about — in many cases — a completely fictitious business, and crypto investors — rather: speculators — would still be throwing amounts of money to them beyond imagination.
Just take a look at the bubble chart below. It works interactively and you can see how the bubbles are bursting into the screen as of say early 2017:
So how much money have ICOs actually raised so far? According to Bloomberg, it depends on who you ask. They put it like this:
“Blockchain may be billed as an immutable public ledger, but in the controversial world of crypto it spawned, establishing truth can be tricky when disclosure standards are still being improvised daily. In the case of ICOs, it remains hard to ascertain the amount of funds an issuer claims it’s raised when no one has to submit any regulated filings or even reveal their identities.” (Justina Lee, Bloomberg)
An example of how far the actual reportedly raised funds can diverge is the crypto exchange project Ruby-X. CoinSchedule says it raised US$1.2 billion; ICORating, US$200 million; Autonomous Research says it’s chosen to exclude it, since its online footprint was unreliable. Ruby-X, which hasn’t disclosed where it’s based, didn’t reply to e-mails seeking comment.
Obviously, given the volatile nature of cryptocurrencies, it also really depends on the date you fix to be that official ICO closing date. Or was it ICO launch date? Or pre-launch? Or? Moreover, as the “exchange rate” between the specific cryptocurrency can be pegged simultaneously to the typical Bitcoins or Ethers to invest in the project, something similar is required in case fiat money can be invested as well. And then indeed the question arises on when that exchange rate actually gets fixed. And preferably also to fiat, as that is what they are trying to report here above. It would be great to get some sort of a standardised way of actually measuring it. But then again, the ICO-ers probably care a little less about such an “accounting” “detail”.
Anyhow, for those still looking for an interesting resource to look up actual ICO related aggregated data, CoinSchedule might be an interesting site. Here below you can find a couple of screenshots of the overall amount raised as well as the top ten ICOs in size (and other information) in a given time period. In 2017, the bulkiest of the pack included US$100M — US$250M Hdac, Filecoin, Tezos, Sirin Labs, Bancor, Polkadot, Qash, and Status. All names that should sound familiar to the average crypto avid these days.
In 2018, the top projects each raised a multiple of the 2017 US$250M mark. #EOS alone raised over US$4B and Telegram raised just under US$2M. That brings us back to the whole “what-is-the-real-amount-raised-now-actually?” issue. For instance, Bloomberg reports for the Petro ICO of US$735M below:
“In March, President Nicolas Maduro said the Petro project had garnered US$5 billion in offers; in April, he said the sale raised US$3.3 billion; the token’s website says US$735 million, the figure cited by CoinSchedule and ICORating.” (Justina Lee, Bloomberg)
Bloomberg also reports an additional layer of complexity:
“To complicate things further, the nature of ICOs is also evolving. A growing portion of tokens are offered privately to selected investors, rather than crowdfunded via the internet as the innovation was initially known for.” (Justina Lee, Bloomberg)
So far we haven’t gone into much detail about the actual shady character of ICOs. But an article about ICOs without mentioning the word scam or shitcoin for that matter, would be unheard of! So let’s dive right in. An interesting website to get you started on this wonderful world is https://deadcoins.com/.
Deadcoins.com provides a nice overview of no less than 680 “deceased” coins, 12 “hacks” i.e. ICOs that work with malware clients (fun huh?!), 182 scams, and 60 parody coins (such as JesusCoin, Bitcorn, ButtCoin, SexCoin, Asstoken, CryptoMeth, ObamaCoin, TrollCoin, ScamCoin, etc.)
An incredibly thorough research document of Bloomberg, published in July 2018, reports that around 78% of ICOs were identified scams prior to trading. Needless to say that I am not inventing the associated scammy character out of the blue!
The report further highlights that 70% of ICO funding (by US$ volume) to that date went to higher quality projects, although over 80% of projects (by # share) were identified as scams (uuff! At least most of the funding went to quality!). For the die-hards, you can find the exact meaning of the terminology used in the graphic below on page 23 of the report.
Great to see you made it this far! Part II will be covering exciting stuff on the next generation of crypto funding. Not only STOs and ETOs, but also an attempt to coining a new term to distinguish between the ICOs of yore and the next generation. Upon receiving 300 claps on this article, I’ll likely regain my motivation to write and I’ll happily jot down another post. So…where’s that clap?
Don’t forget clapping!
Thanks again for reading & clapping.
About Ruben and Ngrave
Ruben Merre is CEO at Ngrave, a blockchain tech company on a mission to make the world of blockchain technology and cryptocurrencies a safer place, with the greater goal of sustaining and co-nurturing the technology’s widespread adoption. To this end, Ngrave is developing an ultra secure blockchain hardware wallet solution for safe-keeping one’s cryptocurrency investments, in collaboration with tech giant IMEC and a world-renowned team of cryptography and hardware security experts.
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