Initial Coin Offerings (ICOs) are on a rapid and steady meteoric rise. ICOs currently account for a majority of blockchain-based startup companies, that’s far more than venture capitalists. With a large majority of ICOs taking place during the first quarter of 2017, the amount raised by this new type of finance to date is estimated to be close $2 billion. According to the CoinDesk State of the Blockchain report, ICOs raised $797 million in the second quarter of 2017 while venture capitalists scored a total of $235 million, that is $562 million less than ICOs. All-time ICO funding secured a standing of $1.78 billion.
It all begins with publishing a 10-page whitepaper, with no prototype or ready product, and before you realize it, each page is worth $1 million. A majority of the projects are from a wide range of industries, but most of them are technology platforms that provide services that would normally be provided by huge institutions which charge high fees.
Take CommerceBlock, with its ICO launching soon, the platform is a public blockchain infrastructure company that is architecting a platform that allows anyone to build and use financial products and services historically reserved for commercial banking customers.
Unlike Initial Public Offerings (IPOs) in traditional finance, ICOs are not intended to be security offerings. Many of ICOs don’t offer equity or ownership in the underlying company the way the traditional setting would be like. A majority of ICOs are intended to provide the buyers of the tokens with access to the platform and as a medium of payment for using the services of the blockchain based software. One example of such utility tokens is the CommerceBlock Tokens (CBT) to be issued by CommerceBlock. The token will be used for services in the CommerceBlock ecosystem, where clients will pay for services using CBTs.
One of the driving forces for the growth of ICOs is the power of the blockchain technology and decentralization. Rather than building a new product on the centralized and database structures, ICO companies are banking on developments and innovations in blockchain technology to offer decentralized services and models, following the advent of the Bitcoin protocol, which enabled permission-less financial innovation. Going back to our CommerceBlock example, the company’s product offerings provide a suite of tools for virtually anyone to build and use service that constructs contracts, manage trade flows, engage in multiparty disputes management, issue assets, and hedge currency risk.