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ICO vs crowdfunding: like “HYIP” become “antihype”

ICO vs краудфандинг: как "хайпы" превращаются в "антихайпы"

Market the ICO will have to attack the same rake as the market of crowdfunding, but only “blows the arm” would be much more painful.

Recent articles in the media and even performances of officials are full of the word “ICO”. This phenomenon, similar to what we saw a few years ago with the word “crowdfunding”. Let me remind the uninitiated. “Crowdfunding” is derived from two English words: crowd — crowd funding — financing. The author of the project creates a campaign platform, promising mountains of gold ( the start of production of a new product, for example), people are “thrown off” and then wait a couple of years — whether or not promised? With ICO all about the same thing, only ICO can be bigger. Company coming to ICO, creates a product (or, let’s be honest, the visibility of the product), draws a one-page website and collects the money — just not euros or rubles, and cryptocurrency. Those who want to support the project, get another cryptocurrency created by the company. So the correlation between crowdfunding and ICO? What will we see next?

ICO: China, eaten flash and late investors.

I must say, many confusing ICO with the IPO, “Oh, Yes, ICO is all just, they say. It’s the same thing that IPO! Only instead of a stock buyers can get a cryptocurrency”. In my opinion, ICO and IPO — is fundamentally different formats, and the comparison is absolutely incorrect. ICO-campaigns are very different, and in fact, only some of them involve the issuance of tokens, which, in fact, fulfill the role of the stock. The vast majority of cases, buyers get a new cryptocurrency, which is nothing and performs no other roles. From companies that during the ICO sell not only bitcoin, but also tokens (and thanks to the tokens as a tool buyers have the opportunity to participate in the division of dividends), include, for example, GoldMint (however, the project personally, I have serious doubt, however, its founders, by the way, our compatriots, good luck with that).

At first glance, the idea of ICO may sound rather strange. I would even use the word “delusional.” Who would think to give their money for the “wrappers”? Give your precious may be the only bitcoin nameany sweat and blood, which now costs as much as $3000 extra? However, here is what is happening in the market now ICO: record; — Bancor Protocol, sold their cryptocurrency during the just-concluded the ICO campaign on $153 million in three hours. The creators MobileGo sold their currency to the $53 million the Last record — Status.im with $112 million in a few hours. The hype around ICO MobileGo and Status.im was so high that it has suspended work on blockchain-Ethereum platform almost daily. The expense of the companies, which grossed $10-20 million, soon, apparently, will go to the hundreds. But, in my opinion, growth will go up to a certain point.

Many have a reasonable question: why do people pour so much money in the ICO company, what kind of projects? After all, the ICO created a currency worth far less than it will cost after just 4-6 months after the campaign. And preICO (i.e. at the stage when the company declares itself), crypto-currency you can buy with a discount up to 50% of the price, which will be installed on ICO. If to perform the exchange and to conduct calculations manually with the current rate, it is possible to compile statistics of some successful cryptocurrency and ICO, for example these: Stratis, the initial cost 0.00012321 bitcoins, in the peak, of about 0.0028 bitcoins, growth 2172,54% in 7 months. Golem c 0,0000449 to 0,000202, growth was 349,89% in 5 months. So far, the record I saw — cryptocurrency platform GameCredits showed incredible growth with 0,000007 to 0.0016 inch. That is, the space 707 23% (the rate growth may be outdated, but according to platforms Poloneix, Icostats we are really talking about thousands of percent within months — Forbes)

Let’s look at the market projects that grew up during the “parade ICO”, through the eyes of a venture investor. According to the statistics of the venture market, 9 out of 10 companies die, and a single project is growing in cost so fast that pays for failure. It turns out, the market for the ICO, the company should grow by more than 1000%. However, in my subjective opinion, in the world of ICO, things are much better than in the venture capital market. At least for now. My prediction is that half of the projects that attracted funding during the ICO will die, 2-3 will go to zero, and the remaining 2-3 will show growth from a few thousand percent. Then the answers to the questions “who are all these people?” and “why do they pour so much money into ICO, because it’s wrappers?!” become clear. Obviously, in the ICO to invest money, those who play on the growth rates and understands what is happening in this market. It and private investors, and a variety of crypto-funds, which, by the way recently there was a huge amount. It is interesting that, according to my information, very actively and aggressively market the ICO and the new cryptocurrency to play China. So, in a personal conversation with one of the founders of the project published on the ICO, I learned that in its preICO with a target of $1 million, in the first half hour is the Chinese investors bought tokens to total $700 000. Why? Because mining in China has long moved on to a completely different level, according to private estimates (official statistics on the cryptocurrency markets, of course not), 90% of the market in cryptocurrency circulation is accounted for by China. Accordingly, those who own mining farms, looking for ways to “attach” the money. Regulatory issues in China lead to the fact that in “normal” markets to efficiently invest their virtual money, these investors can’t. So for holders of a mining farm and cryptocurrency holders of ICO becomes a wonderful way to not only make money but also to diversify their resources. But that’s not all. In 2015 China’s stock market experienced a meltdown: quotes largest companies fell in price by more than half, investors have lost money. I was in China this spring and had heard from locals: “we’ve got a lot of free money, but people, because of different laws, are virtually unable to invest. Was action, but now they are not nested”. In my opinion, cryptocurrencies allow most ordinary people to become investors. And yet – without any control from the authorities. Become an investor so simple that if you believe one of my interlocutors in China, “grandma sell their flats and invest in the ICO”. In China a popular joke: “the ICO is not Initial Coin Offering and the Initial Offering China”.

What’s the bottom line? It seems that the mechanism leaves happy all ICO investors earn, companies receive money for the development. Everyone happy?

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However, the ICO has its complexity. First, what ICO should invest your money? Because all companies create beautiful landing pages, and crumble in the promises but most do not have even a working prototype — just an idea. Second, while you learn the information about the project, the ICO could end. It is not an exaggeration: ICO project called Aragon Network ended up collecting $25 million in 26 minutes. And it still florets in comparison with example Status.im, about which I wrote above. Yes, there are sites that aggregate information on past and upcoming ICO, but can we be sure that they do not publish information in the interests of the organizers of the ICO? For example, the last “loud” ICO of the same Status.im some cryptocurrency invest-funds were informed and instructed in advance, so was able to take part in the ICO before ordinary investors, leaving the latter in great indignation and disappointment. So there are no guarantors. ICO market is extremely chaotic. Third, there is the problem of accessibility of participation in ICO. For many potential investors the idea of cryptocurrency is frightening: “what is this?” “how to buy?”, “what exchange??!!”, “how not to lose it?”, “what would happen if the cat will eat my flash drive, and there’s all the money I earned over the last 20 years?”. I’m exaggerating, but people have not had to deal with the cryptocurrency market, a lot of questions. And, leaving the jokes, for many of them is a serious barrier. Yes, technology is evolving, more and more mobile wallets that allow “beginners” to use the cryptocurrency. But even this does not change the situation: in most cases, the cryptocurrency for beginners is truly an unforgettable adventure.

Crowdfunding: the arrival of big business, unhealthy “HYIPs” and frustration

The market leader in crowdfunding today — Kickstarter. The platform is rapidly developing starting in 2010, annually, showing almost a twofold increase. The problems began a few years ago. In 2014, Kickstarter began to leave the big players, showered with examples of failures. So, which grossed $13 million from the creators of the refrigerator Coolest Cooler has not fulfilled its promises and left their backers with anything. The founders of the project Zano (a specialized drone), received $3 million, suffered the same fate. Startup Ouya, who offered the world microconsole, with $9 million, did not meet user expectations, the project also eventually closed. Large sums (millions of dollars) were collected by the game developers, but their products are also not entered the market. We have seen a small company, with hundreds of thousands of dollars from backers whose authors just disappeared after receiving the money or tell some sort of story, but someone from this easier? It is not surprising that in 2015 the growth of Kickstarter has slowed: in 2013 there were created more than 44 000 campaigns in 2014 — about 67 000 in 2015 — only 10 000 more, about 77 0000. In 2016 on Kickstarter was not just a significantly less companies, and the number of all created campaigns decreased by as much as 18 000: in 2016, they were created only about 58 000 — even less than in 2014. It would seem that the matter is in the decline of trust in backers. But not only that. Another reason (besides the fact that many have stopped believing the promises of authors and even disappointed in the concept of crowdfunding), Kickstarter originally launched as a platform for “newcomers”, it’s a large number of “adult” companies. For them the aim of the game was not a fundraiser, and selling existing products and public relations. In this format, the company launching the campaign to spend through the platform’s own money — usually through a dummy (in fact, “purchased”) users. The result — a major crowdfunding write media. Company provernuvshaya such schemes, earn good money: “hype” works. The first backers are bought 500-1000 users, the second wave of new customers, real people. “The hand” no one caught, but it is common practice, the effectiveness of which I had heard from the organizers of the campaigns. The problem is that in a series of such campaigns on Kickstarter are small developers and small businesses do nothing: their projects are noted, without serious investment in public relations and the purchase of Internet traffic they do not collect anything. Exceptions, of course. The most striking and unusual campaign on Kickstarter still has a chance. But, alas, we are only talking about a fairly small percentage of projects.

According to its own statistics, Kickstarter, the platform for all operating time (about nine years) helped raise more than $3 billion, more than 13 million people supported at least one campaign. A lot or a little? Looking to compare. A comparison with the market ICO (it just “swells”, if you rely on the data given above), I will show that the market is “traditional,” crowdfunding develops not such a frantic pace. But most importantly, Kickstarter, moreover, decreases the proportion of completed successful projects. In 2016, reached the goal more than 18,800 projects in 2015, this figure amounted to more than 22 000. On average, according to my calculations, the share of successful projects in 2012-2014 on average at the site amounted to 40-45%. Today, in a separate project categories, the success rate is close to 20%. Statistics look a little better if you look at the statistics only for the campaigns with the requested funding in less than $10 000 (and 68.5% of the total number among the successful, if we take the official statistics of Kickstarter). But looks times better than their statistics, then the statistics of major projects looks even worse on the General background, i.e. the indicators “adult” campaigns are improved by small (more with statistics the KickStarter blog author is a Forbes).

What’s next?

Finally, I would like to give a forecast for the near future about what will happen with the crowdfunding, and about what is waiting for ICO. I must say that this is only my opinion which can be wrong. We should not build a business strategy. Investments in projects that came to Kickstarter as investment in ICO-campaigns always involve work at your own risk, it is necessary to be aware of.

In my opinion, the situation with the crowdfunding will continue to get worse. Of course, crowdfunding as a phenomenon and not die. But Kickstarter will increasingly run on the model of “shop” tools of sales and PR, but not grounds for “takeoff” bright new ideas. The exception would be those small (up to $10,000) of the campaign. I think that actively will continue to attract funding for projects in niches that are not interesting for big players — the art, music, literature, etc. Games, design, technology — these categories will be more and more filled with projects of a purely commercial players, they will be less interesting to the public because the community of enthusiasts (especially backers) around Kickstarter does not want to participate in “HYIPs” and Fund the businesses, and developing other sources of income. Previously, Kickstarter had other aims, other ideals and because of them the community support the platform. Because of competition from startups, medium-sized companies there will be less. If the crowdfunding platform does not take any measures to deal with the arrival of big business (and the trend is clear), the number of triggered campaigns will continue to go down. Yes, at some point the decline will stop, but it will “touch bottom”. The crowdfunding will continue to warm life, but it will be only a starving shadow of its former glory.

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On the contrary, the market is ICO we are likely to see strong growth. Market the ICO will have to attack the same rake as the market of crowdfunding, but only “blows the arm” would be much more painful. Information noise around such errors will be much greater. A bankrupt company that lost $10 million (as in the case of crowdfunding), is a phenomenon of an entirely different scale than the fall, the company drew $150 million (such amounts, as we have seen, very real in the course of the ICO). Of course, you need to be aware that today around ICO — powerful “hype”: people often do not look at what they invest money, the main thing – to have time to invest. Investors who supported the project during the ICO often does not look at its content: you need to wait a few months to “reset” and to invest in new ICO. How long can this go on? In my opinion, until then, until a stunning “fireworks” bursting from within the virtual world. ICO”bubbles”, the creators have not just lost promises — they initially didn’t plan to meet them. Next will be the same: thousands of articles that ICO — this is very dangerous, about how someone lost another $50 million, as the authors of a project turned out to be a fraud. All those who purchased the cryptocurrency “after” (after they “threw” the initial purchasers), will be “in the red”. The trust of customers for the ICO to fall heavily. “Hype” will turn into “antichip”. It will be a very interesting time. Alas, a series of disappointments in the projects published on the ICO, will affect all market participants, including on respectable authors is really high quality and future projects.

In my estimation, these unfortunate events will start to happen in about a year. That is how much you want usually community awareness and acceptance of the fact that product will not be money lost. Longer than a year, unscrupulous authors “led by the nose” victims can’t. After another year and a half, the situation is normalized. In contrast to the market of crowdfunding, where Kickstarter is far dominates and sets the “rules of the game” for market, ICO more dynamic (its democracy is connected with its openness, driven by the philosophy of blockchain technology and with the availability to investors at any point of the planet). So after the “bubble cryptococcoma” market ICO will survive and be able to adapt to new realities. Believe that the market will look like this: companies that do not have a working product, with very rare exceptions, will not be able to use ICO as a way of attracting funding — lack of confidence become cautious of users will be too large. Cryptocurrency ICO most companies will be useless. Sought-after and valuable will be the cryptocurrency that will perform a very useful function, or the cryptocurrencies that have managed to become liquid and common. Another cryptocurrency traded on exchanges, most likely, will not have absolutely no value even for speculators. Most cryptocurrency companies published on ICO now, you will not find any other application, go to “zero”, taking with him those who bought them last. Rare exceptions, of course, are projects whose cryptocurrency backed by something in the real world (running the it platform or, for example, is physically produced in the factory products). Only if a bunch of real world impact on the value of cryptocurrency projects will continue to evolve. By the way, why large funds today, despite the “hype”, to invest in the new cryptocurrency. Their logic is as follows: 20 cryptocurrency burned, but one of them “shoot” (and it will repeatedly pay for losses from all the failed investments). Overall, in my opinion, the ICO will be a tool to raise funds for those companies that have already earned a reputation. To unknown players for the first time asserting itself, the trust will be insufficient. In the end, the number of projects and “HYIP” market ICO will be replaced by quality and accuracy. Perhaps there will be regulation for the conduct of the ICO campaigns, but I think it will remain completely free jurisdiction.

Today we can often hear from enthusiasts of the blockchain community that “the ICO will replace crowdfunding”. My prediction: won’t replace. Just because ICO and crowdfunding — are quite different approaches, different principles. The audience crowdfunding initiatives and ICO projects are very different: the buyers of crypto-currencies in the course of the ICO tend to earn money in the Baker crowdfunding sites support interesting campaign for the receipt of the product. Different and the motivation of the authors. Those who run the ICO, basically, develop technological projects. Yes, they develop “products” — but not “products” in the sense in which they interpret the backers. The authors, creating a crowdfunding campaign, can’t offer the audience participating in ICO, cryptocurrency, because of the nature of their “products”. For example, as may be associated fabrication, “electron-wood clarinet handmade with foot-thrust” (the example is fictional, but illustrative from the point of view of the uniqueness of the unusual projects that appear on crowdfunding platforms), with the release of a cryptocurrency? The audience of the projects on Kickstarter are accustomed to pay in euros and dollars, its shudder at the very word “cryptocurrency” or “bitcoin wallet”. Those who support the ICO, on the contrary, becomes ill at the mere idea of using Fiat currencies “last century”. In short, I think no battle in the near future — there is nothing to share.

Will it be something more long term? Obviously, the world goes on the blockchain already (though perhaps for some, this trend is not too noticeable). A lot of talk about the fact that any blockchain projects — “bubbles” that “have to sell bitcoin until it was worth $1”. But from the point of view of penetration into the real economy blockchain definitely has huge potential. We will create a single information environment, which will gather representatives of all target audiences, as well as structures and normalizes the conduct of the ICO campaigns at all stages, and will also make conducting a crowdfunding campaign as simple and public as the conduct of the ICO.

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