The raise and fall of ICOs

Introduction

ICOs are an effective way to raise funds, but their ability to attract investors is waning. In this article, we'll look at the history of ICOs and why they've become less popular among investors.

ICO market in 2018

The ICO market exploded in 2018, with $4.2 billion raised by startups through the sale of cryptocurrency tokens. While this is a major increase compared to 2017's $3 billion, it still pales in comparison to the amount raised by venture capital ($84 billion) and angel investors ($19 billion). This is because ICOs are unregulated, meaning that they can be used as a means for companies to raise funds without any oversight or requirements. In other words: they're not subject to any government approvals or restrictions on how they operate their businesses.

In 2018, there were more than 2,100 ICOs, but only 1% of these projects are currently active. These projects have raised $6 billion - a staggering number when compared to the amount raised by venture capital ($84 billion) and angel investors ($19 billion). As of 2019, there are over 2,500 ICOs that have been launched with the total amount raised reaching $7.2 billion.

The ICO market is still very much in its infancy and it remains to be seen how successful these projects will be in the long run. But if we look at the data, it's clear that there is an appetite for these new types of fundraising methods.

Why were ICOs so popular?

There are many reasons why ICOs were popular.

The crypto market is still in its infancy, unregulated and growing. This attracts investors of all types who want to get on board and make money while they can before regulations come into play.

The crypto market has been volatile over the last few years, so it’s not surprising that there are speculators who see an opportunity to make quick cash by investing in an ICO with the hope that their investment will increase substantially in value once it hits the exchanges.

You can also argue that investors don’t necessarily care about whether or not a project is viable or useful; they just want to make money as quickly as possible and then sell off their token for a profit so they can move onto another project.

History of ICOs

Not all coins are created equal, and not all ICO offerings are as successful. In fact, some of them may have failed even before they were launched.

An ICO is a fundraising mechanism in which new projects sell their underlying crypto tokens in exchange for bitcoin and ether. The acronym stands for “initial coin offering”

The first documented use of the term ICO was by William Mougayar, who wrote a paper on it in late 2013 before launching Tokenhub Ltd., an advisory firm that guides companies through the process of doing an ICO.

Part of what makes an ICO different from other forms of raising money is that you get something back (in this case, coins or tokens). Usually these are sold at a discount compared to their market value once they start trading on exchanges (i.e., when someone buys your stock at $10/share instead of its current $15, you're getting more than your money's worth). This incentivizes investors to buy up shares early on—and since most people aren't going around buying up chunks of new cryptocurrencies every day like baseball cards or Beanie Babies anymore—it also means there'll be fewer sellers later down the road when those same coins become popular enough that everyone wants one but few people are willing to sell theirs off once they've got them already

Crowdfunding vs. Initial Coin Offerings (ICOs)

You might have heard the term “ICO” or Initial Coin Offering before. This is a new way of raising funds for blockchain-based projects, similar to crowdfunding. It is not Bitcoin, not a security, not a scam and definitely not a bubble (yet).

ICOs are becoming increasingly popular as a means of raising capital for new blockchain-based projects. They can be compared to an IPO (Initial Public Offering) in that they provide access to an investment opportunity by selling off some of your shares in return for money which you can use to develop your project further. However, whereas IPOs require significant costs and time upfront before investors can benefit from their investments via dividends or company growth returns on capital invested, ICOs have no such requirements since there are no actual shares being sold at all!

Instead, investors buy tokens which represent part ownership over the entire network itself — so when someone purchases these tokens they're really buying into building their own version of Ethereum using EthCore's technology stack (which includes Geth - our open source client software). Each token has its own value based on demand within the market place where it trades against other types or currencies like Bitcoin or Ethers (Ethers being another type of crypto currency used by developers...but more about that later!).

## What is the State of ICO industry now?

As we’ve seen, the ICO industry is still very much alive and well. It’s been around for several years now and shows no signs of slowing down. Still, there are plenty of reasons why you might want to be cautious about investing in ICOs—and doing so could end up costing you a lot more than the initial investment itself.

The current state of cryptocurrency means that even companies that have legitimate products or services to offer may not be able to raise enough money through crowdfunding. This has led some critics who are opposed to cryptocurrencies from all angles—including regulators—to call for greater oversight over how these funds are raised as well as more transparency when it comes time for an exchange platform like Coinbase or Kraken (which requires some kind of government ID) before they allow their customers access their accounts after making purchases online using bitcoins rather than cashier's checks or credit cards).

## Consequences of ICO Explosion Now that you have a better understanding of ICOs and their history, let’s look at the consequences of this explosion.

ICO scams

As we saw above, the rise in popularity of ICOs has led to a corresponding increase in fraud. In fact, it may even be argued that this is one reason why the market is so volatile—many people with no real interest in cryptocurrency are simply trying to make a quick buck by getting in on the hype. Fortunes were made during the heady days of 2017 when everyone wanted to invest in cryptocurrencies; now that prices are falling again, many fraudsters are using this opportunity to get away with as much money as possible before regulators catch up.

ICO regulation

Proponents argue that regulations will stifle innovation and slow down progress towards a decentralized future where everyone interacts freely without oversight from banks or governments (this view seems particularly common among those who've profited handsomely off unscrupulous practices). However, some observers think these concerns may be overblown: after all, if you're investing your life savings into an unregulated currency fund whose founder has been accused of stealing millions from his own investors—and then watching helplessly while things go downhill—you might think twice about trusting another project run by someone with such nefarious intentions!

## Will Authorities Regulate the ICO Market?

You've heard the news: regulators are going to regulate ICOs. But what exactly does that mean?

The answer is not obvious. Regulators have a lot of questions to answer before they can decide how they will proceed with this market. They'll need to ask a few big questions:

Do we want to continue allowing ICOs as an unregulated space? If so, what kind of regulations should apply? Should they be similar or different than those applied on other financial markets? And would these regulations be enough to protect both investors and financial stability in general?

Do we want cryptocurrencies or tokens themselves (and the exchanges where they're traded) regulated in some way? This could involve anything from new rules around financial disclosures and capital requirements for exchanges, all the way up through more drastic measures like preemptively capping cryptocurrency prices or banning certain kinds of activity altogether (e.g., selling unregistered securities).

Do we want these new regulations applied equally across all cryptocurrencies/tokens—or should some be treated differently than others depending on their structure (e.g., centralized vs decentralized) or purpose (e.g., currency vs platform)?

The future of ICOs

The future of ICOs is still being written, and the regulatory environment around them will grow more defined with every passing month as governments, regulators and central banks become more familiar with what an ICO is. As we move away from the first wave of ICOs based on Ethereum in 2016-17 to a second wave that uses newer platforms with greater capacity for scalability and security, we will see increasing sophistication in both funding mechanisms and distribution approaches.

The success of the initial token offerings demonstrates that there is a very real need for decentralized technology solutions in order to solve major problems facing businesses today—whether they be financial transactions or supply chain management systems. The next few years will bring some interesting developments on this front; I expect that we'll see increased adoption by large companies looking to add blockchain technology into their existing products as well as by smaller startups looking for funding through crowd sales rather than angel investors or VCs.

Conclusion

We have covered the rise and fall of ICOs. Now you know how they started, how they grew into a phenomenon, and how they are being regulated around the world. In this article, we also looked at some of the reasons why initial coin offerings are popular among investors. The next step is to see how these tokens can be used in real life!