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.

Most startups, as well as seasoned companies, fear that ICOs/IEOs could end up not raising enough money as hoped. However, with the current trend in ICOs/IEOs, companies are finding it easier to raise sufficient funds through ICOs and IEOs, which can be attributed to the fact that investors have found it to be a promising way to invest their money.

In Mid-May, Bitfinex, a prominent crypto exchange platform, announced through its project CTO, Paolo Ardoino, that they had raised over $1 Billion both in soft and had commitments. This goes a long way to prove that no amount of money is too much for an ICO/IEO.

Bitfinex IEO token sale involved its own LEO tokens, which have already been listed in a number of exchanges like ZB.COM, a Chinese based crypto exchange, and Delta-Exchange among many others.

The $1 billion funds will go a long way in financing the company as it faces a legal battle concerning the missing $850 million.

According to Ardoino, the investments mainly came from private companies who contributed over $100 million each and Users who invested over $1 million each.

Originally, Bitfinex had planned to do a discretionary public phase of the IEO in case the funds raised within the 10-day private token purchase window did not raise enough funds. But as it stands, this ended up being a record-breaking IEO which pretty much seems it will not go to the public face after raising such a huge amount of money in the private face.

This shows how effective ICOs and IEOs can be when it comes to collecting funds for Silicon Valley startups and companies.

Initial Coin Offerings (ICOs) are prime investment opportunities for crypto/blockchain investors. However, their rewards come with very huge risks. It must be a matter of the more the risk the more the reward!

Nevertheless, investors should be well aware of the risks involved before putting in their fortunes in the projects. If you have a clear picture of how the ICOs operate and what you expect from the ICOs, then you stand a better chance of making the right decision when it comes to choosing the right ICO to invest in and also in identifying scams.

Let us look into some of the risks that you should put into consideration when considering to invest in ICOs:

  1. Absence of proper regulation of ICOs

There are no specific regulatory bodies tasked with monitoring Initial Coin Offering projects. Therefore, the ICOs follow no regulatory requirements. As long as the blockchain team feels it has explained its thought to the crowd that is all.

Also, the fact that blockchain and cryptocurrency are decentralized, there are no regulating organs that govern how the tokens or funds are distributed. Everything is left to the users and the development team.

The absence of proper regulation gives way for scammers to take advantage. Anyone can come up with an ICO as long as they are able to convince people to give in their money. Scammers have taken advantage of this and conned lots of people using ICOs. Actually, due to this, China has hinted at banning ICOs.

  1. Lack of professional vetting before an ICO is released to the crowd

In any financial investment, professional vetting is very important. It gives investors an idea of the financial condition of the company and analyses the business model of the company so as to help the investor in understanding the amount of risk they shall be involved in. By lacking this, ICO investors blindly invest their hard earned money into a company they literally know nothing about expecting the fact that they believe that the blockchain project they are about to launch will be successful.

  1. The token market is driven by speculation

When investing in an ICO, an investor is purely after the tokens issued by the company with the hope that the value of the tokens shall rise. However, it is worth noting that the value of cryptocurrency tokens is driven by a variety of factors and the major one being speculation among the users.

Since crypto tokens are traded on platforms which are not open to supervision, you could see a daily fluctuation in prices of thousands of dollars. This makes the prices very volatile.

Managing the risks involved in ICO Investment

  1. Invest in the amount of money you are ready to part with

The promise of high returns makes investors blind to the fact that it is not a guarantee that the project will become successful.

As a retail investor, if you want to invest in an ICO, ensure that you have no other plans for the money that you set aside for the ICO. If you plan for that money and the Blockchain project fails, you shall be left in disappointments and it could even cripple you financially.

  1. Invest where venture capitals (VCs) have invested

Try to look for ICOs where VCs have invested. VCs are able to do the background checks to ensure that they are investing their funds in a business that has good returns. This way, you shall be guaranteed that the ICO is not a scam and that it also has higher chances of succeeding.

  • Invest in ICOs that have a source code ready for implementation

Serious ICOs, have open source codes that investors can look into. If the ICO has no source code, forget about it. It could be a scam.

Also, get programming experts to analyze and find out if the source code is capable of doing what the development team has outlined in their white paper.

There are thousands if not tens of thousands of ICO projects out there. Blockchain developers have identified a simpler way of raising capital to implement their blockchain projects. And at the same time, investors have also gotten an opportunity to rip big from the blockchain projects through the ICOs.

However, not every ICO is worth investing in. ICOs are known to be poorly regulated and chances of landing into the hands of a scammer are very high. Actually, whenever you are investing in an ICO, you are only gambling on the value of the crypto token issued to you. You only have your fingers crossed that the project will gather momentum and attract customers in line with whatever solution that the blockchain project is trying to solve. Otherwise, if the project doesn’t pick, your money goes to waste and there is no way of claiming it back.

Nevertheless, despite the risks involved, there are still very great chances of ripping big from ICOs. If you correctly identify the best ICOs, then you shall earn yourself some good money when the project picks and the value of the issued crypto tokens rise.

But how can you identify an ICO project that will give you good returns? What is the secret? We shall go through some factors that you should consider when choosing an ICO project to invest in.

Factors to consider when choosing an ICO

  1. Gather facts to prove that the ICO is not a scam

This can be very hard since no scammer will portray himself as one. Actually, scammers are very good at concealing themselves and using very attractive advertisement language that sweeps you off your feet very easily. But as a serious investor, always take your time before investing your hard earned money. You don’t want to lose that which you have labored hard to acquire to some person sited in an office waiting for you to give him the money and then vanish.

A genuine ICO will have a real website that isn’t duplicated anywhere else. Also, the contact and location of their head office are normally well indicated on their official website. Before launching an ICO, any serious developer knows that they should have a whitepaper to explain what they intend to do, what they have done so far so that they can convince the investor why they should give them money. Your main attention should be on the development team.

Go through the information on the development team very carefully looking to see if you can spot any misplaced information like if they went to school which cause they took and what role they are playing in the project to see if they match. Of cause, someone can’t do something they aren’t experienced in and you expect that project to be a success. The best ICOs are those where the development team has given links to their social media since you can be able to follow up on them.

  1. Look at the ICO community

You don’t want to be the only person interested in the ICO. If that is the case then there is a problem. A promising project attracts as many investors as possible. Actually, this is a way of gauging to see if the project has any prospects of picking or not.

You should also look for an open supporting community. There should be a social group like a telegram chat group or Facebook, Reddit or Twitter where you can interact with your fellow investors. That way, you will be able to identify any concerns raised by other investors.

You should also ensure that the ICO project does not have bounty threads or posts since they could be used to spread propaganda information which does not give the clear picture of the entire blockchain project.

A genuine ICO project will have the development team send out press releases and take interviews in the media houses to try and sensitive the people about the project and explain to them what they want to do so that the people can get interested in the project. There is no need for bounty threads or posts.

  1. Confirm the stage of the project

Any serious blockchain project should have a roadmap that clearly outlines the timelines for achieving the various milestones along the development stages.

Before asking for funds through the ICO, the developers should have done something. They don’t just ask for money to start everything. No! There has to be proof that the project is indeed a serious project and that it has already started and it has reached a certain stage.

If possible, find an ICO that is as close as possible to the launch of a fully functioning blockchain project.

You should never invest in a blockchain project that hasn’t written its source code. The code should be ready waiting for implementation.

  1. Look for Venture Capital (VC) Investments

VCs will never invest in a project that has the slightest signs of being a failure. Therefore, if you invest in an ICO project with an established VC, you are guaranteed that the project will pick.

And any blockchain that gets a venture capital investments will gladly display it for everyone to see since it gives other investors’ confidence. But also be careful to confirm if the VC is well established.

  1. Carefully read the white paper

The white paper will enable you to know exactly what you are investing in. by reading through the white paper, you shall know what the entire project is all about.

If you find the project viable, then why not invest? However, you should take your time and even do research into what the blockchain project claims they want to tackle. Is it something that will interest the community? Will it gain the attention of the intended audience?

A good white paper will outline the legal framework between investors and developers. It will also outline the team behind the project and their contact. You should also look for information on the token distribution. The token distribution should be in line with the roadmap. This is because a certain amount of funds will be required for every phase of the roadmap.

For security reasons, you should also ensure that the funds are stored in a cold wallet or in an escrow wallet.

  1. Analyze their source code

The source code should be open source code. If it is not open source code, then that is a red flag. A genuine ICO project will be careful to put everything in a transparent manner.

Go through the code or find an expert to go through it and identify if it is able to meet the challenges being addressed by the blockchain project.

Conclusion

After evaluating the ICO project based on the above factors, you should be good to go.

However, you should remember that ICOs are poorly regulated and it could be hard to ever get your money back in case the projects fails. Therefore, it is advisable to invest an amount that you are ready to part with. You should not have too much attachment to the money that you invest. If that is the case, you better not invest since if the project fails, then you will be very heartbroken and you could easily be depressed.