You want to start a business, but first you need the funding. Traditionally, you would seek out investors, or perhaps launch a crowdfunding campaign. But wait, there’s a new kid on the block that might just be the key to your success; Cryptocurrency. While the name sounds confusing, you have probably heard of the popular form, bitcoin. Since the launching and popularization of the internet, creating a successful cryptocurrency has been a feat that many have attempted and a select few have accomplished.
However, as the world of cryptocurrency is more widely understood, new forms of cryptocurrency are being developed regularly. For startup businesses, creating a new form of cryptocurrency, or an Initial Coin Offering, has become a quick way to gather the funds needed to get their idea off the ground.
What is an Initial Coin Offering?
In order to understand why an Initial Coin Offering is the next best thing when it comes to startups, one must first understand the basics of cryptocurrency. Cryptocurrency is a decentralized form of currency that is regulated through the encryption of the transaction process. Because there is no regulation of the currency, the value can fluctuate based on the supply, demand and risk of the currency. An Initial Coin Offering is the creation of a cryptocurrency.
Why is an Initial Coin Offering the New Way to Launch a Startup?
As mentioned before, the traditional way to fund a startup is through investors, or a crowdfunding campaign. Both of these forms of funding have their downfalls. Traditional investors give larger amounts of money to startups with the promise of a return on their investment. However, in order to find serious investors who are committed to handing over real cash, a startup not only has to have a well laid out plan, but also has to have proof that their startup can be successful by showing valuations. If a startup does not have the means to create this proof, finding a traditional investor can be a nearly impossible task.
When it comes to crowdfunding, this type of fundraising for a startup can be easier, but is not as appealing to the investor/backer. In a crowdfunding scenario, the startup does not have to be able to provide as much proof regarding the potential success of their company, because usually the backer is giving smaller amounts of money. Due to the fact that the backers in a crowdfunding scenario are giving smaller amounts of money to the startup, they do not see as much, if any, of a return on their investment, and therefore the money given is viewed more as a donation instead of an investment opportunity.
Enter, Initial Coin Offerings.
The idea and function of an Initial Coin Offering for a startup combines the best of traditional investment and crowdfunding. Using an Initial Coin Offering to fund a startup, people exchange small amounts of already popular cryptocurrency in hopes that the Initial Coin Offering given in return will become valuable and bring them a return on their investment.
An Initial Coin Offering is seen as more of an investment than crowdfunding due to the increasing popularity of cryptocurrency and the desire to incorporate it into one’s financial portfolio. Similarly, it is also seen as less of a risk than traditional investments because of the small amount of already popular cryptocurrency that is necessary to invest in an Initial Coin Offering. The combination of these factors make Initial Coin Offerings the golden ticket of opportunity for startups.