Cryptocurrency startups have found a number of ways for raising capital. ICOs was the first method to be invented. However, ICOs have ended up being shrouded by lots of scams due to lack of proper regulations.

IPOs and STOs were among the first methods to be invented alongside ICOs. However, these two (STOs and IPOs) have not become as successful as the ICOs due to the strict regulations set by the regulatory authorities like SEC.

The ease with which ICOs are operated attracts a lot of investors and inventors were forced to come up with a way to make the ICOs scam proof. They had to come up with a formula to make the ICOs crowdfunding possible, even in countries like China, where ICOs are banned due to lack of proper regulation formulas. This is basically what led to the invention of IEOs.

IEOs employ the same working principles as the ICOs and thus maintains the simplicity with which they are carried out. However, by using the crypto exchange Launchpad, they make them safer compared to the ICOs since the development team has to meet a number of requirements for their project’s token sale to be listed on the exchange. Therefore, the issue of scams in IEOs is greatly minimized since they would keep the reputation of the crypto exchanges at risk.

Nevertheless, although the IEOs make it more interesting and safer for investors, the investors still carry the bulk of the risks; the project may pick or fail. The fact that a project gets funded through a crypto exchange Launchpad does not mean that the project will automatically become a success.

However, we cannot refute the fact that projects that have done their crowdfunding through IEOs have ended up hitting their target within a very short timeframe compared to the ICOs which take months and at times even end up missing their targets. We have seen projects hit their targets even in minutes.

In IEOs, the target investors seem to be guaranteed. The exchange users, of course, trust their exchange platform and tend to take up every opportunity that comes up on the exchange. Therefore, if the exchange lists an IEO, the users will be fighting to invest in it. But the question is; how sure are the investors that the project they invest in will succeed and become profitable.

IEOs are still not very reassuring just like the ICOs. Investors can only hope and pray that the project team does its best to ensure that the project picks to give the tokens more value than the value at which they purchased it. In a way, they cannot be compared to the STOs, where the investor gets a share of ownership of the project.

At the moment IEOs seem to be carrying the day and developers can depend on them for raising funds. However, for investors, the rise and fall of ICOs should serve as a lesson. Investors should always ensure due diligence whenever they are choosing which project to invest in.

It is true that scamming is greatly reduced in IEOs, but even genuine projects flop if they were not well planned. Investors should do thorough research about the projects before investing their money.

What does the future hold for IEOs?

One thing is for sure; cryptocurrency exchanges are here to stay. In an actual sense, we should expect to see more and more exchanges entering the market.

Blockchain and cryptocurrency startups have gathered momentum and the easiest way for them to raise capital is by depending on the general public for funding. The banking sector is too costly for them. Blockchain startups cannot afford bank loans since the projects may not thrive as anticipated since they wholly depend on how the general public receives them.

From an expert view, IEOs will most definitely outstay the ICOs. Also, more countries are set to embrace IEOs compared to ICOs since they are offered through exchanges which are easily regulated by the regulatory bodies.

IEOs, therefore, have no problem with complying with the set laws and governments won’t have to come up with new rules to regulate them.

By the look of things, one may argue that this is true. Initial Coin Offering (ICOs) were doing very well in 2017 and early 2018 and many startups were able to collect billions of funds as capital to get their projects started. However, to date, no proper regulations have been put in place to monitor how the ICOs are carried out.

ICOs lack a third-party overseer. Therefore, scammers have found it to be a great opportunity to reap from the uninformed investors. As it stands, basically anyone can launch and run an ICO provided they are able to convince people that they have something they want to do and money is the hindrance.

Some governments like those of China and South Korea have banned ICO completely making it very hard for the genuine startups to fundraise through the ICOs.

The introduction of Initial Exchange Offering (IEO) was a game-changer. Startups even in those countries that had banned ICOs can now easily raise funds through crowdfunding since they shall not be breaking any laws.

In addition, though both ICOs and IEOs share some degree of rationales, in IEO, there is an overseer who is normally the exchange platform through which the IEO is being run.

For a development team to run any IEO, they have to meet and comply with the requirements set by the exchange. Therefore, the exchange acts as a cushion for investors. Investors are guaranteed that whatever the exchange is offering is well cross-examined and that it is not a scam. As a matter of fact, if the IEO was to be a scam, it would ruin the reputation of the exchange which still needs to continue with its activities after the IEO.

It is always important to factor in the cost before undertaking any project. Otherwise, you may get stuck along the way due to a lack of funds. A clear picture of the cost will enable you to financially plan in advance to ensure that you have enough funds to run all the necessary activities for the success of any project.

For a STO, the cost depends on a number of things throughout the various phases of the STO, which include:

  1. The concept phase: this includes the development and drafting of the project concept and it entails the selection of the token standard and the whitepaper.
  • Choosing the token standards

For the token standard selection, you will need to choose the best standard to build your token on. The most commonly used standards are the ECR20 though there is a large list of standards ranging from the ERC20 to ERC1450.

The selection of the right token standard can be easy with the right standard consultant. Ideally, it is better to engage a consultancy that provides the full suite of STO services including legal instead of looking for a consultant for every task.

  • Whitepaper

As the founder or owner of the STO, you could have the best description of the project, but you require a professional to draft the whitepaper nicely and professionally.

  1. The development phase: This is the bulk of the entire project. It includes the creation of the smart contract, deploying the smart contract, and creation of an investor panel.

You will need to hire a development team depending on qualifications. Most importantly, you will need UI and UX experts, blockchain engineer (s) and product experts. All these professionals come at different costs depending on their level of expertise.

At this phase, it is wise to go for the highest experienced individuals to ensure that you get the best. You can always negotiate your way out with the professionals to charge you fairly instead of going for novices who may compromise your entire project.

  1. Security and legal audit: You will have to test your blockchain project for bugs before launching the STO. The testing requires an internal auditor and a third-party auditor who can also be a community auditor.

Above the security, you should also ensure that the tokens are checked for compatibility with the available crypto exchange platforms.

Most people ignore this phase due to the added cost, but it is an important phase which would prevent future problems with your STO.

  1. Legal and marketing: Contrary to ICOs, STOs have rules that they must adhere to. Therefore, you will require a good legal team to follow up on the issue of KYC, AML in addition to the other rules and regulations touching on STOs.

You also need to market the STO so as to attract as many investors as possible. However, you will need to involve the legal team to ensure that marketing is GDPR compliant. Most importantly, you will require website developers to create an attractive landing page.

You will also have to explore all the marketing avenues, especially through digital platforms. However, you have to strike a balance to avoid overspending on marketing.

 

Tokenomics simply refers to a detailed outline of how your token works within the blockchain ecosystem, its viability and also how you plan on attracting investors.

Due to the lack of proper regulations, scammers are taking advantage of ignorant crypto investors who just invest their money in projects without first scrutinizing them thoroughly. In 2017 alone over 70% of ICOs were frauds mostly because at the time not many investors knew much about ICOs.

However, over a period of 2 years, investors have gained more knowledge making it is hard for scammers to con them. Investors are now more educated about what a trustworthy token entails and you will have to include all that in your whitepaper to convince them that you are not just another scammer.

The whitepaper informs the world about your project

The whitepaper is a very crucial aspect of an ICO/STO. It tells potential investors all about your project. Therefore, you will have to make it as much detailed as possible.

Most specifically, you will have to include everything about the tokenomics. You will have to clearly show that your crypto token is just not a way of raising funds but it goes beyond to become a robust alt coin in the near future. Investors must be able to clearly understand how your crypto token interlinks with the whole project and also understand its economic value.

What is included in the tokenomics?

For your crypto token to be proved to be viable, you should include a number of things, which include:

  1. The function of the token

You should explain how your token shall be used within the blockchain network and how users will benefit from it. You have to paint a clear picture to the investor of why you are creating the crypto token.

For instance, you could outline a number of services that can be paid for using the token or even give a number of goods that the user shall be able to purchase using the token if there are any.

  1. Token distribution

The token distribution gives a detailed outlook of how you intend to distribute the total amount of the available tokens. You should give the actual number of tokens that shall be available for the Pre-sale and also for the ICO itself.

You should also breakdown the information and show the potential investors out of the available tokens what number of tokens will be used for what. For instance, you could have a project with 1 billion tokens and decide that 60% will go to the token sale, 20% for marketing, and 20% for the team. This way, the investors will be able to get a clear picture of how you intend to fund your project.

You should also give a detailed outlook of how the funds collected through the token sale shall be used and show what percentage will be used for what.

  1. The token governance

You will also need to stipulate how the tokens shall be used within the blockchain ecosystem of your project. You need to clearly outline the rules on which the token shall operate. For example, you should include the pricing guidelines for transactions and many more.

Blockchain and ICO can best be explained as eccentric. Therefore, you need to look for eccentric ways of getting people to know about your ICO token sale. And one of the unorthodox methods of spreading the word is by using bounty programs.

Bounty programs for ICOs

Bounty programs were initially introduced for gamers where they could get rewarded for reaching a certain level in a game. Later, the idea was adopted by blockchain developers and it is now commonly used in finding loopholes in blockchain programs; and they have turned out to be such great avenues for developers to identify weak points in their programs for correction to prevent future hacking.

In our case, bounty programs for ICOs are programs in which people are rewarded for spreading the word. It is a great marketing strategy since the main theme in ICO marketing is getting the word about your ICO to as many people as possible since the many the people the more the probability of finding interested investors.

As an ICO owner, you simply reward people according to how much they help in spreading the word about your ICO. You can decide to reward them in fiat currency or crypto tokens being used in the ICO.

There are normally two types of ICO bounty programs which are very specific to the tasks they are oriented for. These are:

1.    The Pre-ICO bounty

Just as the name suggests, the purpose of this bounty is to drum up as much support as possible for the upcoming ICO. It basically sensitizes people that there is an upcoming ICO they could be ready to invest in.

Some of the activities that individuals can involve in in the pre-ICO bounty programs include but not limited to:

  • Social media campaigns: Social media has turned out to be a major tool when it comes to advertisement. Participant help by posting information about the upcoming blockchain project on popular social media platforms like Facebook, WhatsApp, Twitter, LinkedIn, etc. Other means are by participating in discussions in crypto communities through Reddit or Telegram.

The reward, in this case, is normally based on how much the participant has engaged the general population.

  • Creating content: In addition to the whitepaper, you may still require bloggers to produce shorter and captivating articles to attract people since not all people find it interesting to go through whitepapers since they appear to be too technical.

The bloggers could also help in producing newsletters and even translate the content into different dialects for different communities around the world to understand.

Also, the reward is determined by how much the participant is able to engage the general crowd.

  • Bounties for signatures: These are programs where the ICO owner provides a code embedded signature. Then the participants post this signature and the more they rank the more they get. A good example of this bounty is the Bitcointalk signature bounties.

2.    Post-ICO Bounty

The purpose of this bounty is to gather as much feedback as possible and also keep on indicating the progress in accordance with the roadmap. This bounty programs normally involve:

  • Bounties to translate: the participants compete in translating the key documents into various languages. Key among the documents is the whitepaper and the website.
  • Bounties for reporting bugs: This is normally done to help in identifying and fixing any mistakes that may be present in the blockchain program.

Some years ago, there was a major push for cryptocurrencies to have debit cards just like banks have master cards and Visa cards. But was it really a viable idea?

When they first hit the market back in 2017, crypto debit cards were the talk of the town and every crypto investor was dying to own one. Probably at that time, it was all for identity purposes especially given the fact that cryptocurrencies had just been invented and anything to do with them was a source of prestige.

Two years down the line, the same cards that were once a hot cake have almost become extinct with the companies that had invested in manufacturing them almost becoming ‘endangered species’.

Shift Card for an instant, that had been issuing cryptocurrency visa cards with Coinbase, have stopped producing the cards due to low demand.

But why did the demand for these tools become obsolete while the bank cards never lose taste? Is there anything that cryptocurrencies could borrow from bank cards?

At the moment No! The fact that cryptocurrencies are decentralized makes everything quite complicated for debit cards. In addition, in case crypto users want to withdraw their crypto coins, they can easily convert them for fiat money and use the normal bank cards to transact.

Also, most of the cryptocurrency transactions are done online and there are very limited cases where cards would apply.

Sourcing for funds is always a hard task for entrepreneurs, especially when starting a new business. Most of the times, as an entrepreneur, you will be forced to spend quite a considerable amount of time meeting with prospective investors instead of using that time to concentrate on your business.

The time squandered by meeting with potential investors could be used in developing the business while still informing the investors about the business. To do so, you could consider using tokenization instead.

Currently, the most commonly used methods used method for funding startups is Initial coin offering (ICOs), Initial Exchange Offering (IEOs) and Security Token Offering (STOs). Despite there being a number of handles, ICOs have proven quite resourceful when it comes to crowdfunding. You are able to access funds from a wide base within a very short time while at the same time saving the time of meeting with the investors in person to concentrate on your business.

There are also other methods like Security Token Offering (STOs) which is better regulated compared to ICOs. Unlike ICOs, STOs are vetted by the SEC.

How does it work?

We all know that blockchain is decentralized and that is stored distributed ledgers. At the same time, blockchains come up with tokens/cryptocurrency coins to be used for transactions within the networks.

As an entrepreneur, you can tap into the benefits of using tokens to fund your next business.

With tokenization, you create digital securities for your business/company. The tokens or digital securities are backed by the assets of the business. You then let investors buy the digital assets once they know what your business is all about.

In the process, you are able to get funds in exchange for the digital assets while at the same time the investors have a claim of the company just as in the traditional shares.

However, even with the lucrative opportunities that tokenization offers for entrepreneurs in this era, there are still handles, most of which have to do with regulations that still hinder the full-scale adoption of this technology. We have seen countries like China and South Korea put a ban on such forms of raising fund.

Benefits of using tokenization in funding your business

  1. It increases the enterprise value of your business

The tokens reflect the value of the assets of your company and they can also be traded on exchange platforms.

Also, since the tokens have a value of their own, they also add up to the overall value of the enterprise.

  1. It offers better liquidity to investors

Compared to traditional stock markets, tokenization offers a more liquid form of investment. With tokens, there are lots of exchange platforms where investors can trade their tokens and there are always ready buyers.

  • You can raise capital without diluting your ownership of the assets behind the token

Since tokenization involves the creation of tokens that are sold to fund your business, the created tokens/ digital assets add an extra layer of enterprise value in addition to the company’s capital stock and assets.

In addition, it gives you the opportunity to fund the business without compromising on the ownership of the assets.

In addition to price speculation, cryptocurrencies have opened a whole lot of opportunity for entrepreneurs through their open financial system.

From being decentralized, there have been major strides towards making blockchain a better open financial system. From the adoption of identity protocols for now, your customer (KYC) and anti-money laundering (AML), compliance to modular, and open-source tools, blockchain has been able to align with the traditional economic structures.

The sheer innovation opportunities that blockchain has offered for entrepreneurs is exciting. Also, there is the monetary sovereignty that comes with cryptocurrencies that also includes data privacy within the unbanked world.

Adoption of open finance

‘Open finance’ simply refers to the decentralized nature of cryptocurrencies/blockchain networks. It is increasingly becoming a darling for many entrepreneurs due to its interoperable nature of the system. Its core belief includes transparency, accessibility, financial inclusion, and standardization.

World Bank’s Global Findex report showed that more than 2 billion people around the world still have no access to bank services. Blockchain/cryptocurrencies could be a great opportunity for them.

Cryptocurrencies have made it easier for people to access transactions mechanism and data storage channels without involving intermediaries by creating new financial assets outside the traditional financial system which places banks at the heart of the system.

Bitcoin was the first cryptocurrency to be developed and since then other cryptocurrencies have been developed with emphasis to open financial tools. Cryptocurrencies are now being developed on open protocols and hybrid services offered commercial bodies.

Some of the open financial tools that are quickly gaining traction are blockchain lending services, security tokens, and decentralized trading markets.

It is normally difficult to employ a wholesale adoption of the open finance blockchain system. Rather, developers choose to develop hybrid blockchain ecosystems on the already existing business and financial models.

At the same time for open finance to prosper, the right infrastructure has to be provided. Financial institutions and regulators around the world are toiling very hard to ensure that the right infrastructure is in place as cryptocurrencies adoption gathers momentum.

For example, startups have found a new way to fund their projects through ICOs, IEOs, and STOs. However, without the right infrastructure, there can be a lot of fraud.

Standardization of the open financial ecosystem

The future of open financial system landscape is pegged on open protocols and hybrid financial services. For entrepreneurs, the adoption of open financial across the world which is rapidly replacing the traditional financial systems like banks presents exceptional opportunities. The whole system of the open financial system is completely reshaping the old financial model.

Countries are slowly transiting to cashless societies and cryptocurrencies provide the perfect solution.

The current rush by countries to come up with crypto regulations is a clear sign that governments have realized that cryptocurrencies are unstoppable and that they better do something before they are caught up in the shakeup. Almost every country is currently working on coming up with laws to regulate the use of cryptocurrencies.

With standardization across the board, the open financial ecosystem will be more applicable across countries.

Blockchain technology is known to be making a very great impact due to its features especially its privacy. However, the very features that make blockchain technology a darling too many, seems to be causing headaches with both authorities and some enterprises.

Although blockchain networks provide users with a very high degree of privacy, the stored public ledgers are irreversible. Experts warn that this ‘privacy poisoning’ is the biggest risks facing organizations, centerpieces, and governments.

Blockchain privacy poisoning: what is it?

The European Union recently came up with the General Data Protection Regulation (GDPR), which states that every individual has “the right to be forgotten”. However, this is practically impossible with blockchain networks since you cannot alter the content of the ledger files stored in a blockchain network.

Blockchain privacy poisoning refers to the poisoning of blockchain networks with personal data that cannot be deleted as per the GDPR.

The fact that blockchain networks provide a solution for storing original data in a manner that it cannot be adulterated, the same advantage creates a major problem for organizations, especially in the European nations. You have personal data on a network, but it is impossible to destroy that data. If the data is deleted, it would mean compromising the entire blockchain. Blockchain is a chain of blocks that contain ledger files.

Initially, blockchain privacy poisoning was not a major issue since the only information that was predominantly stored on blockchain networks was transaction detail. However, with the adoption of blockchain technology across different fields like medicine, industries, and businesses, other information is being stored in blockchain networks.

One of the key areas that blockchain technology is being used is in consent management. Blockchain is being used in the proof of consent and in the coming years this will see a widespread application. However, this is double-edged since the information provided by the user for the proof of consent is irreversible or cannot be deleted without destroying the entire blockchain network.

Does blockchain privacy poisoning apply to private blockchain networks?

There are two types of blockchain networks; the public blockchain networks and the private blockchain networks.

For public blockchain networks, anyone can access the network and participate in the networks but the information entered in the network cannot be altered in any way. This squarely falls under the GDPR.

Private Blockchain networks, on the other hand, can only be accessed by those who have been granted permission. The users and the kind of transactions are restricted. They are mostly used in military, national defense, supply chain management, construction, filling returns among other places. The GDPR laws do not apply when it comes to private blockchain networks.

Normally, if any private data is shared through the private blockchain networks that information would never be available to the public contrary to the public blockchain networks. Therefore, even if a private blockchain network becomes “poisoned” by the personal data, it somehow doesn’t really matter.

What does the future hold?

One thing is for sure: new regulations especially those aimed at regulating individuals’ privacy could pose major complications when it comes to blockchain implementation.  The GDPR has already proved that such rules might not apply to blockchain technology although experts could also opt for a way to make blockchain comply with such rules. The question is when?