Tao Rongqi: Here is everything you want to know about ICO

The author Tao Rongqi is the VP of Ant Onchain and has participated in the writing of "Blockchain: New Economic Blueprint and Introduction" and "Blockchain: From Digital Currency to Trust Society". This article is part of "Blockchain: New Wealth Code"

What is ICO?

ICO is the abbreviation of Initial Coin Offering. ICO is a product of the international digital currency/blockchain community, and there is no official or dictionary definition so far.

“ICO is adapted from the term Initial Public Offering in the securities industry. In essence, ICO is also a kind of ‘public offering’, but the underlying assets of the offering have changed from securities to digital cryptocurrencies.”

——Ming Sun, partner of Broad & Bright Law Firm

Why are there ICOs?

All successful digital currency and blockchain (blockchain in this article refers to "public blockchain") projects are community projects. In common ICOs, digital currency and blockchain projects sell project tokens to early enthusiasts. Project teams obtain funds for technology development and market expansion through ICOs; project enthusiasts support projects through ICOs, and can also choose to exit trading after the corresponding tokens enter the trading market.

Coin is mentioned in ICO. Is it because ICO is related to Bitcoin?

The first ICO that can be found is from the Mastercoin project (now renamed Omni), which announced on Bitcointalk (the largest Bitcoin and digital currency community forum) in July 2013 that it would conduct ICO crowdfunding through Bitcoin, and generate corresponding Mastercoin tokens and distribute them to crowdfunding participants. In essence, this ICO is a kind of barter, that is, participants use Bitcoin to exchange for tokens in the Mastercoin project. At the beginning, ICO was just a community behavior of digital currency enthusiasts. With the continuous development of digital currency and blockchain, more and more people began to accept and participate. Most ICOs are conducted through Bitcoin or other digital currencies.

I still don’t quite understand. You said that a project token will be issued in ICO, so is this token valuable?

The value of a token comes from the corresponding digital currency and the blockchain itself. For example, Ethereum, as the world's top blockchain, has a market value composed of all Ethereum tokens - Ether (ETH). The example of Ethereum tells us that a blockchain project with a world-class value consensus will also have a world-class overall market value and token price.

Wait, aren’t project tokens a form of digital fan commemorative coins?

No, or rather, it depends on the token design of the project. Take Ethereum for example, the role of Ether (ETH) in its blockchain is a kind of fuel (Gas). Ethereum users need to consume the corresponding Ether to run Ethereum smart contracts. In addition to making Ether as the "oil" in Ethereum economically meaningful, it can also solve the potential dead loop problem of its Turing complete technology. Of course, some project tokens have almost no design, so this kind of ICO is no different from the issuance of "fan commemorative coins".

I see, token design is very important. Could you tell us more about the design of various blockchain tokens?

Token design involves economics and the underlying blockchain itself, and I will discuss this in a separate article.

Therefore, ICO participants invest Bitcoin and receive project tokens, and the value of the tokens depends on the subsequent development and design of the blockchain project.

Yes.

So how do participants cash out their tokens? After all, I am not a philanthropist like Jack Ma.

The project tokens in the hands of participants are generally circulated and exited through digital currency exchanges.

I heard that some tokens can only be obtained after a whole year after the ICO, while others can be obtained within a few days. What’s going on?

Every blockchain project has a "Genesis" phase. The tokens of all ICO projects only correspond to their mainnets (Mainnet) rather than the early testnets (Testnet), otherwise they have no value. The appearance of the first "Genesis Block" on the Mainnet means that the project is officially launched. As for when the Mainnet will be launched, it is controlled by the team according to the project progress. For example, Ethereum launched its ICO in July 2014, and did not launch the Mainnet until the end of July 2015. From historical experience, launching the Mainnet and entering the exchange for circulation a few days after the ICO will affect the market value performance of the project.

Let’s talk about some famous ICO cases.

The following are representative international ICO cases listed in chronological order:

- July 2013, Mastercoin (now renamed Omni ): the earliest traceable ICO project, which expanded Bitcoin functionality through meta-protocol and raised 5,000 BTC.

- December 2013, NXT (Futurecoin) : the first complete PoS blockchain, once mysterious developers, and a strong community that continues to grow. ICO myth: raised 21 BTC (yes, you read that right, 21BTC, equivalent to about $6,000 at the time), and the peak market value reached $100 million.

- 2013-2014, Bitshares : One of the "Three Musketeers of Digital Asset Tokens" (the other two are NXT and CounterParty), the source of gossip in the domestic digital currency circle, with mixed praise and criticism. Its community has cultivated a large number of early ICO and digital asset enthusiasts in China.

- In July 2014, Ethereum raised more than 30,000 bitcoins during the ICO, setting a record. This blockchain project has pushed the concept of smart contracts to the extreme, and has made the world re-recognize the public blockchain. This is the most successful ICO in the past two years, and it is also the digital currency/blockchain project with the highest market value besides Bitcoin. Recently, due to the impact of TheDAO incident, the situation has been uncertain.

- March 2015, Factom : dual-token design, the first commercialization of blockchain with proof of existence and the resulting dual institutional setup of foundation and company.

- March 2016, Lisk : Ethereum challenger, Dapp solution using sidechain.

- In May 2016, TheDAO : a world record-breaking ICO crowdfunding worth $150 million, an atypical ICO (it is not a blockchain). It was hacked by hackers just one month after loudly announcing the arrival of the smart contract era to the world, leaving a deep double exclamation mark in history.

I have heard a little about TheDAO incident. Does this mean that ICO funds are not safe?

No. TheDAO is not a native blockchain, but a smart contract trust implementation based on Ethereum. TheDAO's problem comes from the lax review of its smart contract, which led to hackers using its bugs to move funds. There have been many comments on TheDAO, please refer to Babbitt's related smart contract special topic and TheDAO incident special topic.

So how do you ensure the safety of funds from other ICOs?

Now it seems that a more reliable way is to use Bitcoin’s own multi-signature function to guarantee ICO funds.

What you said seems very impressive, but is the success rate of ICO so high? Are there no failures?

There are successes and failures, and failed ICOs are not mentioned. Always remember that ICOs are very risky.

So how do you judge whether an ICO is good or bad?

If we want to conduct a specific quantitative analysis, there will be many parameters that need to be judged. And the different judgments of various participants also have their reasons, which are enough to be written into a book. Here is a universally recognized way of judgment: look at the team. Projects with reliable teams and recognized by the community have a lower chance of failure.

Have you ever seen a statistic like this: Regardless of whether it is good or bad, if you bundle up all the past ICOs, how is the current market value performance? How does it compare to the performance of the stock market and commodities in the past two years?

Unfortunately, there is no complete statistics so far. However, we can give a rough conclusion here. It is more convenient to look at large-scale ICOs from the perspective of the 28th Law. There are not many large-scale ICO projects, and most of them perform well, and sometimes even explode several times in the secondary market. Even the widely criticized TheDAO cannot be said to be bad from the perspective of market value (on July 20, when this article was written, its RMB market price was 0.73 yuan, almost the same as when it was ICO). It can be said that the overall market value of all ICOs in the past few years has performed well, undoubtedly outperforming the stock market and commodities by a lot.

Can we say that ICOs with large amounts are good, and ICOs with small amounts are bad?

No. What needs to be considered is the relative ratio between the ICO amount and the project itself. As mentioned earlier, the methods for judging ICOs are complex and varied, and this article cannot elaborate due to space limitations.

I learned a lot, so where can I find ICO projects? Is there a dedicated website?

Remember, ICOs come from the community and the market. If you are patient and know how to surf the Internet scientifically, you can find sections and projects on Bitcointalk, which is the headquarters of all digital currency and blockchain ICOs. You can also find selected ICO projects on the following three websites:

- Cyber.fund

- Smithandcrown.com

- Icocountdown.com

How to participate after finding the corresponding website?

The way to participate in each ICO is different, but generally speaking, Bitcoin is required. In simple terms, what you need to do to participate in an ICO is:

1. Get Bitcoin

2. According to the ICO project's instructions, use Bitcoin to participate in the corresponding ICO period

Well, so far they are all foreign projects, so what about domestic ICOs?

In a broad sense, there are many ICOs in China, namely the so-called "subscription coins". But most of them are just "running fast" Ponzi games. From the perspective of quality and innovation, there are so many good ICOs in China that you can't count them on one hand.

Is the gap between China and foreign countries so big?

First of all, we need to admit the gap. Secondly, there are indeed excellent ICO projects in China. In fact, the more fundamental reason for the small number of projects is that China lacked a good community atmosphere and related platforms before. After entering 2016, we can see that China has made some progress in both projects and community platforms, such as Babbitt's forum and coin crowdfunding. I believe that with the continuous development of the domestic community, ICO will also be able to make great strides forward.

It seems that ICOs can be used not only for digital currencies and blockchain projects, but also for general securities, right?

In fact, there have been private attempts in this regard at home and abroad. For example, Mycelium has issued its company shares through ICO. This topic is very large and belongs to the discussion of "digital assets". Delaware has clearly promoted the use of blockchain for company equity registration. I believe that the digitization of assets is inevitable in the future.

Last question: Are there any ICOs you would like to recommend recently?

I like your knowing the answer but asking the question anyway. Antshares Global ICO Crowdfunding will be held on August 8 (antshares.org, QQ group 573816801). We look forward to your participation.