Blockchain startups quietly ignite token crowdfunding

Baozou Comment : Startups are usually not paid attention to in the early stage, especially the rapid development of blockchain technology has brought a large number of start-ups in this field, so the token crowdfunding (ICO) in the blockchain field has been able to quietly rise in the market, even escaping the eyes of Wall Street financial tycoons. However, as ICO gradually reaches scale, the traditional financial industry must rationally analyze the pros and cons of this new financing model. After all, ICO is full of immature start-ups and investors with no capital experience. The failure of projects such as DAO also gave us the most intuitive warning.

Translation: Annie_Xu

In the past three years, the amount of ICO (Initial Coin Offerings) has quietly accumulated to $220 million, even escaping the eyes of Wall Street investment giants. ICO is different from ordinary IPO (initial public offering) or crowdfunding platforms such as Kickstarter. Before the software is developed, blockchain startups sell their own digital currency through ICO as a certificate for using the software.

ICOs are an easy way to make money, and I have participated in some projects myself. However, for the companies I founded, I require to avoid the Wild West-style extensive financing methods.

Of course, this does not mean that I doubt the huge potential of blockchain. Bitcoin and blockchain technology will greatly change our lives, just like the Internet and personal computers. But in the 1990s when everyone was talking about the Internet, the blockchain investment boom quietly emerged in the form of ICO.

Just like the rise of the Internet, there is a lack of criticism of blockchain ICOs. Startups easily raised $180 million in personal capital with just a white paper and a website. The companies had no fiduciary responsibility or liability for breach of contract to individual investors.

ICOs generally last for a specific period of time, after which the startup will have the funds; and they are almost always in the form of Bitcoin; but Bitcoin's competitor Ethereum has also formed an independent ecosystem. During the financing process, the financing institution will issue a certain amount of digital currency. The value of digital currency comes from software development, so it can be called software project investment.

To explain in a non-technical world, suppose you create a Coffeetown to compete with Starbucks; consumption in it is limited to self-issued shopping vouchers Beanbucks. Therefore, in order to operate this chain of stores, these shopping vouchers are pre-sold to the public. Buyers can sell the shopping vouchers at a high price after the store opens, or exchange them for coffee at a low price. However, if the store fails, these shopping vouchers are worthless. This is the world of ICOs, and it takes more time than a cup of coffee.

The Ethereum ICO was a success. This "upgraded" version of Bitcoin supports smart contracts and other decentralized applications. The Ethereum ICO raised $18.5 million and is currently worth $959 million, bringing great benefits to ICO participants. Why was it so successful? Of course, it was due to the excellent team. They invested the funds in software development and found excellent partners. The entire ICO process was well managed, the planning was precise and detailed, and the technical implementation was perfect. Although there was a delay in the issuance of Ethereum after the ICO, it seems that everyone benefited.

MaidSafe is a negative example of poor execution. MaidSafe's ICO raised $7 million in June 2014, but as of November 2016, the development of the Alpha version was still progressing slowly. Some people may say that the project is difficult and takes time; others may say that an immature team cannot optimize such a large investment. I have no doubt that the MaidSafe team's intentions, but they set the bar too high. Two other projects launched in 2014, Ziftr and Gems, each completed $1 million in financing, but two years later, they also did not achieve much.

Perhaps the most tragic ICO was the DAO (Decentralized Autonomous Organization). The DAO claimed that its organizational structure would ensure efficient fund allocation and open decision-making. Based on the Ethereum blockchain, the DAO quickly raised $180 million in Ether and Bitcoin. Unfortunately, a software bug led to the theft of $50 million, the project failed, and even Ethereum fell into crisis. Although some people recovered their funds, others gave up the opportunity.

ICOs as a whole are performing poorly. This is not a fault of Bitcoin or the concept of ICOs, but rather the obsession with speculation among investors and entrepreneurs that permeates the market.

Every new technology is always accompanied by a speculative frenzy; including rail transit, cars, movie studios, personal computers, the Internet, and now the blockchain. This field is new and will bring a lot of wealth. But this wealth comes from the traditional adherence to the vital interests of consumers. Entrepreneurs should not equate the success of ICOs with the recognition of their personal abilities. If the project cannot create real value, then the value of the digital currency is equal to zero.