What Are ICOs?

bout Initial Coin Offerings

From the NY Times: “Initial coin offerings have come out of nowhere in 2017 to become the talk of Silicon Valley and Wall Street. Programmers have raised over $3.2 billion this year by selling their own virtual currencies to investors. That is 3,000 percent more than the amount raised using coin offerings in 2016.”

https://www.nytimes.com/2017/10/27/technology/what-is-an-initial-coin-offering.html

Initial coin offerings are way for teams of software developers and entrepreneurs to bypassing gigantic investment infrastructres (and legal requirements!)

Generally, entrepreneurs make some new coin, and then sell a percentage of them in exchange for a well established crypto currency (like Ethereum). They then either convert some of their Ethereum or Bitcoin to cash to pay their expenses. Usually salaries are paid directly in Ethereum and individual employees implement their own conversion strategies.

Legality:

The ICO eco system is the Wild West. In many cases, the laws are not yet written.

Some companies hire specialized compliance companies (like CoinList.com) which takes the most conservative compliance approach, including vetting every single initial purchaser.

Brock Pierce, founder of Blockchain Capital, advices companies doing ICOs to exclude American citizens because “they are 90% of your legal liability, and 15% of your investment.”  Zerion, a company that helps others do ICOs, excludes Americans.

Other companies operate with complete anonymity, which is rightly considered a huge warning sign.

Type of Coins:

Generally, the digital tokens sold in ICOs fall into two categories. Utility tokens, and Equity tokens. Utility tokens are used as token money in the system that the company is building. Equity tokens are a promise by the company creating them to disburse dividends to the holders of the tokens.

Both utility tokens, and equity tokens get traded on the many crypto currency exchanges.

AdShares are both a utility token and an equity token. Payments in their system will be made with AdShares, and a small percentage of every payment will be made to everyone who owns AdShares. Basically, if you don’t use your AdShares, they’ll grow in number in proportion to the amount of payments in the network — and if a lot of them go out of circulation, then presumably their price will go up, and the cost of advertising (expressed in adshared) will plummet as the monetary supply contracts. (The definition of deflation.)

An unproven concept:

The most successful ICO is Ethereum, which is the leading platform for other ICOs. In other words, outside of their use as money (Bitcoin) the only major use case of digital tokens is in the system that generates other digital tokens. Some traditional Scilicon Valley investors (Jason Calacanis) have used this as evidence that the concept is completely unproven.

The counter argument is that this industry is less than a year old. The winners have not had time to emerge. And for the first time, entrepreneurs are able to work on protocols. Typically protocols (like TCP/IP) are the work of governments and research conglomerates. And not only are entrepreneurs able to work on them, but they’re able to profit from their success. Profiting from the success of your invention is a relatively new phenomenon.