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What is an ICO? Why Startups Will Change Forever

By Felix Forsgren - June 17, 2017

What is an ICO?

I like to compare it to an IPO which most investors are familiar with. The Initial Public Offering of shares in a company.

An ICO is very similar it stands for Initial Coin Offering, which means it’s the first time the public can buy tokens in a company.

ICO’s are  just like IPO’s used to raise capital for a company to fund the development of a product or technology. The difference is that companies offering an ICO exist on the blockchain. Making them decentralised and free from government control and regulations. Often leading to easier acquirement and distribution of capital.

The amount of shares sold during an IPO and ICO also differ. During an ICO the precedent is to sell 80% of the company to the public to get a decentralised and network ownership effect. While in an IPO founders sell between 10-30% in order to keep control of the company.

Side effects from this old kind of ownership is that company owners can decide on matters which is not in favour of share holders. For example to issue new shares leading to depreciation of the shares that already exist. While in a decentralised company the network would have to decide if they would like to issue new shares or not.

 

What is a token?

A token is similar to a stock, a share in a company that can pay dividends and increase in value depending on how promising the future looks for the company. However it comes with a few differences.

When you buy a token you are buying a digital asset. Now because the company operates decentralised on the blockchain a token can also come with tasks and rules enforced by a smart contract. For example a rule could be that every owner of token X needs to report on the price of gold every day or they will receive a penalty, where the penalty could be removal of a token.

Now what is that good for? Well if you think about it the pure beauty of a decentralised company is that the investors are not just holding assets in the company that they can’t do anything with, instead they can now also contribute by performing tasks that are of value to the company. Subsequently leading to an increase in value of their assets. Imagine if all Coca Cola share holders were also required to market Coca Cola through their Instagram accounts, it would get a good spread.

 

Golem is the biggest ICO funded token to date

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With a market cap of 492 million USD. Headed by Julian Zawistowski the Golem Network makes it possible for people to rent out their spare computing power. The vision is to create a worldwide super computer that will bring down the price for computing power.

Golem issued a token called GNT. There is a fixed supply of 1 billion shares, 82% of which were sold during the crowd sale in order to achieve the decentralised effect. These tokens are required when interacting with the golem network and used as payment for renting computing power. It’s possible to exchange them for other cryptocurrencies or fiat. Now since there is a fixed supply of GNT if more people want to use it the price of GNT will increase. This gives GNT token owners incentive to make sure as many people as possible want to use it and enjoy the experience. Now compared to a normal regulated company Golem now has a huge decentralised network that is promoting and optimising the product together. Ask yourself what is more sustainable?

 

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