{"id":32828,"date":"2017-04-20T16:21:32","date_gmt":"2017-04-20T14:21:32","guid":{"rendered":"https:\/\/www.hiig.de\/?p=32828\/"},"modified":"2023-03-28T15:36:34","modified_gmt":"2023-03-28T13:36:34","slug":"the-ico-revolution","status":"publish","type":"post","link":"https:\/\/www.hiig.de\/en\/the-ico-revolution\/","title":{"rendered":"The ICO Revolution"},"content":{"rendered":"<p><em>The startup-investment market is preparing for the next revolution:\u00a0Initial Coin Offerings (ICO). While most financial institutes and investors are still busy, getting a gist of crpto-currencies and blockchain technology, ICO is the latest example of young\u00a0tech ventures&#8217; creativity. It shows the investors\u2019 willingness to take part in an experimental, risky and (allegedly) unregulated financial innovation.\u00a0\u00a0<\/em><\/p>\n<p><em><span style=\"font-weight: 400;\">This blog post is part of a series, in which <strong>Adrian Haase<\/strong> and <a href=\"http:\/\/www.foundersbox.vc\/about\/julian-albrecht\/\"><strong>Julian Albrecht<\/strong><\/a> go after the most exciting economic and legal questions concerning ICO. The post appeared first on\u00a0<\/span><a href=\"http:\/\/www.foundersbox.vc\/guidance\/detail\/show\/ico-a-revolution-in-startup-funding-\/96\/\"><span style=\"font-weight: 400;\">foundersbox<\/span><\/a><span style=\"font-weight: 400;\">.<\/span><\/em><\/p>\n<p><span style=\"font-weight: 400;\">Here, and in two other brief articles, we answer three questions about ICOs:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">What are they? (introduction)<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Who needs them? (economic relevance)<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">How do they work? (legal implications)<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">It is no coincidence that the term \u2018ICO\u2019 contains echoes of \u2018IPO\u2019 (<a href=\"http:\/\/www.investopedia.com\/terms\/i\/ipo.asp\">Initial Public Offering<\/a>), which refers to the initial emission of a corporation\u2019s shares on the stock market. Initially, ICOs were used for the development and market-placement of cryptocurrencies. Many of the best-known and most widely-used cryptocurrencies, such as NXT, Mastercoin, Ether and Factom, were launched with an ICO. In 2016 alone Smith + Crown counted 64 ICOs with a total investment volume of US$102 million.<\/span><\/p>\n<h3><b>The funding environment for startups and ICOs<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Currently, startups need to incur liabilities to cover their financial needs, for example by taking out loans (debt financing), by issuing new shares in connection with capital increases (equity finance) or by using hybrid forms (mezzanine financing, convertible loans). ICOs do not fit into any of these categories. This is why:<\/span><\/p>\n<ul>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Companies that issue cryptotokens do not usually incur any liabilities (\u2260 debt financing).<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Shares and related shareholder rights (dividends, etc.) are generally not issued (\u2260 equity finance). In other words, cryptotoken-holders have the same influence on the startup as someone waving a banknote has on the policy of the European Central Bank: none whatsoever.<\/span><\/li>\n<li style=\"font-weight: 400;\"><span style=\"font-weight: 400;\">Cryptotokens cannot be converted into loan receivables or shares (\u2260 mezzanine finance, convertible loans).<\/span><\/li>\n<\/ul>\n<p><span style=\"font-weight: 400;\">Ultimately, ICOs are a hybrid form of financing located somewhere between crowdfunding and equity financing (venture capital). On the one hand, investments are generally made in an initial idea that cannot yet be reliably valued because of unsuitable rating criteria for ventures in the pre-incorporation phase. Like crowdfunding, ICOs often pose an emotional incentive to investors by enabling them to benefit from the product\u2019s success. On the other hand, tradeable objects are issued which \u2013 similar to shares \u2013 at least to some extent symbolize the economic success and (depending on the ICO) grant certain legal rights comparable with rights under corporate law.<\/span><\/p>\n<h3><b>Progress of an ICO<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">To a certain extent, ICOs stand for one of the most original forms of corporate funding: the sale of a startup\u2019s own product and the subsequent generation of turnover. The progress of an ICO also inherits components of the grass-roots democratic origins of the internet. In the pre-phase, the ICO\u2019s initiators involve interested stakeholders, investors and enthusiasts on online platforms such as Bitcoin Talk or Reddit (project development). Next comes the main phase, which is divided into three parts. First, the initiators prepare and publicly distribute a white paper. This contains information on the project or the corporation (to the extent available), the required capital, the base currency (typically Bitcoin) and other administrative aspects. Second, the initiators will typically launch a large-scale PR campaign as a digital counterpart to an IPO roadshow. Finally, the actual ICO \u2013 the emission of cryptotokens \u2013 can begin.<\/span><\/p>\n<h3><b>What gap do ICOs fill?<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Although some developments are purely coincidental, most developments in corporate financing are reactions to an existing funding situation. It is widely acknowledged that equity financing and venture capital financing emerged from restrictive lending policies caused by the lack of collateral held by most startups.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">Unlike crowdfunding, which addresses investors\u2019 more altruistic motives and enables the realization of projects that would not be commercial competitive, equity financing through IPOs or the issuance of shares is subject to multiple regulatory requirements. It is designed to establish the institutionalization of shareholdings in a company \u2013 an effect that founders and\/or investors do not necessarily want.<\/span><\/p>\n<p><span style=\"font-weight: 400;\">ICOs offer a different option. By means of an independent currency, the ICO gives investors immediate access to the product and enables them to participate indirectly in the project \u2013 and its success \u2013 when the value of the cryptotokens increases. What\u2019s more, the founders and initiators retain their decision-making authority in the early stages of the project, while generating new capital at the same time.<\/span><\/p>\n<h3><b>Challenges, domains and potential developments<\/b><\/h3>\n<p><span style=\"font-weight: 400;\">Will ICOs become more than just a financing sideshow for Blockchain startups in their earliest stages (combined with high entrepreneurial risks for investors)? Or will they prosper into a flexible alternative in the financial market? That remains to be seen. In the next blog posts in our ICO series we will examine the economic relevance of ICOs and the legal implications.<\/span><\/p>\n<p><em>This post is part of a weekly series of articles by doctoral candidates of the Alexander von Humboldt Institute for Internet and Society. It does not necessarily represent the view of the institute itself. For more information about the topics of these articles and associated research projects, please contact info@hiig.de.<\/em><\/p>\n<div class=\"shariff shariff-align-flex-start shariff-widget-align-flex-start\"><ul class=\"shariff-buttons theme-round orientation-horizontal buttonsize-medium\"><li class=\"shariff-button linkedin shariff-nocustomcolor\" style=\"background-color:#1488bf\"><a href=\"https:\/\/www.linkedin.com\/sharing\/share-offsite\/?url=https%3A%2F%2Fwww.hiig.de%2Fen%2Fthe-ico-revolution%2F\" title=\"Share on LinkedIn\" aria-label=\"Share on LinkedIn\" role=\"button\" rel=\"noopener nofollow\" class=\"shariff-link\" style=\"; background-color:#0077b5; color:#fff\" target=\"_blank\"><span class=\"shariff-icon\" style=\"\"><svg width=\"32px\" height=\"20px\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 27 32\"><path fill=\"#0077b5\" d=\"M6.2 11.2v17.7h-5.9v-17.7h5.9zM6.6 5.7q0 1.3-0.9 2.2t-2.4 0.9h0q-1.5 0-2.4-0.9t-0.9-2.2 0.9-2.2 2.4-0.9 2.4 0.9 0.9 2.2zM27.4 18.7v10.1h-5.9v-9.5q0-1.9-0.7-2.9t-2.3-1.1q-1.1 0-1.9 0.6t-1.2 1.5q-0.2 0.5-0.2 1.4v9.9h-5.9q0-7.1 0-11.6t0-5.3l0-0.9h5.9v2.6h0q0.4-0.6 0.7-1t1-0.9 1.6-0.8 2-0.3q3 0 4.9 2t1.9 6z\"\/><\/svg><\/span><\/a><\/li><li class=\"shariff-button bluesky shariff-nocustomcolor\" style=\"background-color:#84c4ff\"><a href=\"https:\/\/bsky.app\/intent\/compose?text=The%20ICO%20Revolution https%3A%2F%2Fwww.hiig.de%2Fen%2Fthe-ico-revolution%2F  via @hiigberlin.bsky.social\" title=\"Share on Bluesky\" aria-label=\"Share on Bluesky\" role=\"button\" rel=\"noopener nofollow\" class=\"shariff-link\" style=\"; background-color:#0085ff; color:#fff\" target=\"_blank\"><span class=\"shariff-icon\" style=\"\"><svg width=\"20\" height=\"20\" version=\"1.1\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 20 20\"><path class=\"st0\" d=\"M4.89,3.12c2.07,1.55,4.3,4.71,5.11,6.4.82-1.69,3.04-4.84,5.11-6.4,1.49-1.12,3.91-1.99,3.91.77,0,.55-.32,4.63-.5,5.3-.64,2.3-2.99,2.89-5.08,2.54,3.65.62,4.58,2.68,2.57,4.74-3.81,3.91-5.48-.98-5.9-2.23-.08-.23-.11-.34-.12-.25,0-.09-.04.02-.12.25-.43,1.25-2.09,6.14-5.9,2.23-2.01-2.06-1.08-4.12,2.57-4.74-2.09.36-4.44-.23-5.08-2.54-.19-.66-.5-4.74-.5-5.3,0-2.76,2.42-1.89,3.91-.77h0Z\"\/><\/svg><\/span><\/a><\/li><li class=\"shariff-button mailto shariff-nocustomcolor\" style=\"background-color:#a8a8a8\"><a href=\"mailto:?body=https%3A%2F%2Fwww.hiig.de%2Fen%2Fthe-ico-revolution%2F&subject=The%20ICO%20Revolution\" title=\"Send by email\" aria-label=\"Send by email\" role=\"button\" rel=\"noopener nofollow\" class=\"shariff-link\" style=\"; background-color:#999; color:#fff\"><span class=\"shariff-icon\" style=\"\"><svg width=\"32px\" height=\"20px\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" viewBox=\"0 0 32 32\"><path fill=\"#999\" d=\"M32 12.7v14.2q0 1.2-0.8 2t-2 0.9h-26.3q-1.2 0-2-0.9t-0.8-2v-14.2q0.8 0.9 1.8 1.6 6.5 4.4 8.9 6.1 1 0.8 1.6 1.2t1.7 0.9 2 0.4h0.1q0.9 0 2-0.4t1.7-0.9 1.6-1.2q3-2.2 8.9-6.1 1-0.7 1.8-1.6zM32 7.4q0 1.4-0.9 2.7t-2.2 2.2q-6.7 4.7-8.4 5.8-0.2 0.1-0.7 0.5t-1 0.7-0.9 0.6-1.1 0.5-0.9 0.2h-0.1q-0.4 0-0.9-0.2t-1.1-0.5-0.9-0.6-1-0.7-0.7-0.5q-1.6-1.1-4.7-3.2t-3.6-2.6q-1.1-0.7-2.1-2t-1-2.5q0-1.4 0.7-2.3t2.1-0.9h26.3q1.2 0 2 0.8t0.9 2z\"\/><\/svg><\/span><\/a><\/li><\/ul><\/div>","protected":false},"excerpt":{"rendered":"<p>The startup-investment market is preparing for the next revolution:\u00a0Initial Coin Offerings (ICO). While most financial institutes and investors are still busy, getting a gist of crpto-currencies and blockchain technology, ICO is the latest example of young\u00a0tech ventures&#8217; creativity. It shows the investors\u2019 willingness to take part in an experimental, risky and (allegedly) unregulated financial innovation.\u00a0\u00a0&hellip;<\/p>\n","protected":false},"author":53,"featured_media":32829,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[1581,223],"tags":[],"class_list":["post-32828","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-ftif-digital-future-work","category-innovation-and-work"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v26.6 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>The ICO Revolution &#8211; Digital Society Blog<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.hiig.de\/en\/the-ico-revolution\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"The ICO Revolution &#8211; Digital Society Blog\" \/>\n<meta property=\"og:description\" content=\"The startup-investment market is preparing for the next revolution:\u00a0Initial Coin Offerings (ICO). 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It shows the investors\u2019 willingness to take part in an experimental, risky and (allegedly) unregulated financial innovation.\u00a0\u00a0&hellip;\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.hiig.de\/en\/the-ico-revolution\/\" \/>\n<meta property=\"og:site_name\" content=\"HIIG\" \/>\n<meta property=\"article:published_time\" content=\"2017-04-20T14:21:32+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-03-28T13:36:34+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.hiig.de\/wp-content\/uploads\/2017\/04\/bitcoin-2057405_1920.png\" \/>\n\t<meta property=\"og:image:width\" content=\"1314\" \/>\n\t<meta property=\"og:image:height\" content=\"739\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/png\" \/>\n<meta name=\"author\" content=\"Adrian Haase\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:label1\" content=\"Written by\" \/>\n\t<meta name=\"twitter:data1\" content=\"Adrian Haase\" \/>\n\t<meta name=\"twitter:label2\" content=\"Est. reading time\" \/>\n\t<meta name=\"twitter:data2\" content=\"4 minutes\" \/>\n<!-- \/ Yoast SEO plugin. -->","yoast_head_json":{"title":"The ICO Revolution &#8211; Digital Society Blog","robots":{"index":"index","follow":"follow","max-snippet":"max-snippet:-1","max-image-preview":"max-image-preview:large","max-video-preview":"max-video-preview:-1"},"canonical":"https:\/\/www.hiig.de\/en\/the-ico-revolution\/","og_locale":"en_US","og_type":"article","og_title":"The ICO Revolution &#8211; Digital Society Blog","og_description":"The startup-investment market is preparing for the next revolution:\u00a0Initial Coin Offerings (ICO). While most financial institutes and investors are still busy, getting a gist of crpto-currencies and blockchain technology, ICO is the latest example of young\u00a0tech ventures&#8217; creativity. It shows the investors\u2019 willingness to take part in an experimental, risky and (allegedly) unregulated financial innovation.\u00a0\u00a0&hellip;","og_url":"https:\/\/www.hiig.de\/en\/the-ico-revolution\/","og_site_name":"HIIG","article_published_time":"2017-04-20T14:21:32+00:00","article_modified_time":"2023-03-28T13:36:34+00:00","og_image":[{"width":1314,"height":739,"url":"https:\/\/www.hiig.de\/wp-content\/uploads\/2017\/04\/bitcoin-2057405_1920.png","type":"image\/png"}],"author":"Adrian Haase","twitter_card":"summary_large_image","twitter_misc":{"Written by":"Adrian Haase","Est. reading time":"4 minutes"},"schema":{"@context":"https:\/\/schema.org","@graph":[{"@type":"Article","@id":"https:\/\/www.hiig.de\/en\/the-ico-revolution\/#article","isPartOf":{"@id":"https:\/\/www.hiig.de\/en\/the-ico-revolution\/"},"author":{"name":"Adrian Haase","@id":"https:\/\/www.hiig.de\/#\/schema\/person\/c4b59c3bb59d195ca49e88c66dc1fbbe"},"headline":"The ICO Revolution","datePublished":"2017-04-20T14:21:32+00:00","dateModified":"2023-03-28T13:36:34+00:00","mainEntityOfPage":{"@id":"https:\/\/www.hiig.de\/en\/the-ico-revolution\/"},"wordCount":858,"publisher":{"@id":"https:\/\/www.hiig.de\/#organization"},"image":{"@id":"https:\/\/www.hiig.de\/en\/the-ico-revolution\/#primaryimage"},"thumbnailUrl":"https:\/\/www.hiig.de\/wp-content\/uploads\/2023\/12\/post_generic.png","articleSection":["ftif Digital Future of Work","Innovation and Work"],"inLanguage":"en-US"},{"@type":"WebPage","@id":"https:\/\/www.hiig.de\/en\/the-ico-revolution\/","url":"https:\/\/www.hiig.de\/en\/the-ico-revolution\/","name":"The ICO Revolution &#8211; 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