ICO stands for Initial Coin Offering. It is a fundraising mechanism in which crypto tokens are sold by new projects in exchange for bitcoin and ether.
WORKING OF AN ICO
Firstly, a limited amount of tokens are issued by the developer. A limited amount of tokens ensures that the tokens itself has a value and the ICO has a goal to aim for. The price of the tokens may be static pre-determined or it may increase or decrease depending on the crowd sale. Someone who wants to buy the token sends a particular amount of ether to the crowd sale address. The corresponding amount of tokens are received when the contract acknowledges that this transaction is done. This was the general idea of working for an ICO.
It is an established fact that 90 percent of ICO’s will fail. Also, it should be an established fact that 90 percent of these ERC20s on CoinMarketCap are going to be zero. However, it is surprising to see that most ICO’s are failing much faster than most other traditional businesses.
REASONS OF FAILING OF ICO
There can be many reasons for failing an ICO.
There are three pillars that make an ICO which are crypto economics, utility, and security. If any of these is not paid attention by the developers, there are huge chances of failure of an ICO.
1. CRYPTOECONOMICS
The word crypto economics is made up of two words: “cryptography” and “economics”.The developers usually forget the “crypto economics” of their ICOs. Most of the developers just pay attention to the cryptography part. They forget the existence of “economics”. The result of which is that it is really rare to find a token whose economic skeleton has been properly and thoroughly mapped out. Due to this, ICOs fail.
2. UTILITY
The total satisfaction derived from the consumption of goods and services is a utility. Most of the ICO’s do not maximize their token utility. One needs to understand the role of tokens and should maximize its utility if they want to use them in business. One needs to understand that tokens can be multi-purpose tools which can bring in a lot of oomph to the business. If one fails to understand all this, it is obvious for an ICO to fail.
Role, features, and purpose are the three tenets of token utility.
3. SECURITY
During your ICO and immediately after the ICO one needs to pay complete attention to the security. Otherwise, there are chances of the hackers to attack and rob you. Therefore, security is also a major factor to be kept in mind for the smooth working of an ICO.
4. LACK OF EXPERIENCE AND BAD PROJECT IDEAS
One must have a good experience and knowledge before investing in an ICO. There are a few reasons that ICOs fail but it all boils down due to lack of experience. The companies should have enough knowledge and experience about the industry they are targeting, blockchain technology and effective management of a business. One must know and communicate why their solution is better than everything already out there and why no one else has a more appealing offer. One of the most important things that an investor should look out before investing in an ICO is that whether or not the token will be adopted by the users and whether or not its application will be able to solve problems in the real world. But unfortunately, most of the ICOs are bad ideas from the start which causes them to fail.
5. LOW BARRIERS TO ENTRY
There are low barriers to entry in this field which ultimately leads to failure of the ICOs. Many ICO’s are launched without having a minimal viable product and even the proof of concept. The ease and simplicity of throwing a website have led many projects into failure. On the other hand, most of the other startups have a higher threshold of viability which is necessary to be achieved before a project can even think about seeking outside funding which leads to their success.
6. ICOs ARE A VICTIM OF THEIR OWN SUCCESS
Crypto is the victim of their own success. While the vast majority of traditional startups fail as well, it’s particularly common with the ICOs, as they simply aren’t prepared to bring their product to the market.
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Hitesh Malviya is the Founder of ItsBlockchain. He is one of the most early adopters of blockchain & cryptocurrency enthusiast in India. After being into space for a few years, he started IBC in 2016 to help other early adopters learn about the technology.
Before IBC, Hitesh has founded 4 companies in the cyber security & IT space.
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