2017 – Year of the ICO
To date, several 10,000 cryptocurrencies have already been created. There are far fewer today. Some have done an exit scam and escaped with users’ funds, others just didn’t have the potential to catch on, and still others failed due to technical glitches. According to coinmarketcap, there are currently around 20,000 cryptocurrencies on the market.
But how are such cryptocurrencies created? Cryptocurrencies are, as you already know, digital currencies. In order to create such a digital currency, a programmer is required to write a code. This code then sets the relevant rules for a particular coin.
Since it all still sounds a bit abstract, here’s an example. The pseudonym Satoshi Nakamoto is the developer of Bitcoin. In order for the coin to function as it does, a few rules are set here. Satoshi Nakamoto has chosen the Proof of Work consensus mechanism. The security of the system is guaranteed by miners. These provide computing power in exchange for a mining fee (currently 6.25 BTC per block), which in turn is used to calculate new blocks. Do you only understand the train station? So click here and learn more about the system behind Bitcoin.
Additional rules are for Bitcoin e.g. B. the maximum supply of 21,000,000 BTC, the halving after 210,000 mined blocks, the time it takes for a block to be validated, etc.
However, the basic system of a cryptocurrency is the blockchain. Every cryptocurrency is on a blockchain. Cryptocurrencies that have their own blockchain are called coins (BTC, ETH, etc.), while cryptos that run on another coin’s blockchain are called tokens (VET, EOS, etc.).
Depending on which of these two systems you choose, the cost will be driven up. The longer the development process takes and the more sophisticated the system, the higher the development costs.
But which private individual has several million euros in the bank to realize his idea in the form of his own cryptocurrency? Exactly – very few. For this reason, in 2017, the year when a so-called bullrun took place, a very special crowdfunding system became very attractive – ICO.
The abbreviation ICO stands for the term Initial Coin Offering. This has been a very popular means of raising money to develop cryptocurrencies since 2017. Concretely, you can imagine it as follows.
Group A wants to create a cryptocurrency but does not have enough equity capital to realize their ideas. Therefore, Group A is looking for investors who believe in the project.
So the first step is to make a plan for what the project must be able to do, what expectations Group A has for the project, etc. With this project plan, however, Group A is now not approaching a venture capitalist who has very strict requirements. requirements, but addresses the general public.
Through events and advertising, Group A tries to draw the attention of as many people as possible to their project and to convince them of the meaningfulness of the project. With an ICO, they then get the opportunity to buy a share of the cryptocurrency to be developed before it even appears on the market.
Thus, Group A is already taking money for the development of the coin from people who are convinced of the usefulness of the project and expect an increase in value before the cryptocurrency is launched. The biggest ICO in crypto history is EOS. The ICO flushed the developers about $4.2 billion into their pockets.
With the example, you should now have understood the basic idea behind an ICO. But why is 2017 the year of ICOs? Quite simply: in mid-2016, there were only 19 ICOs on the crypto market. In 2017, ICOs took off so much that by the end of 2018, around 2,300 ICOs had taken place.
However, you should also exercise caution with ICOs. There are a few known cases where fraudsters have tried to steal money from their customers. For example, ICOs were started without the coin behind them ever being developed, let alone announced. In 2017, more than half of all ICOs failed.