What’s next in initial coin offerings?

Financial technology is sprouting up left and right – finding its way throughout our lives from our personal banking to, now, how we trade investments. There has been a recent shift in those looking to manage their finances that has drawn people to using technology to help them with the task. Fintech startup companies directly help with traditional banking and financial institutions. In several countries around the globe, fintech companies are slowly taking over, providing services and products that were once found only through financial institutions.

One fintech development you may have heard of, and even may be sick of hearing about, is Bitcoin. Bitcoin is a cryptocurrency that was developed in 2008, using blockchain technology. Since its creation, the way we operate our finances may have changed for good, thanks to blockchain.

What originally started as a way to fund cryptocurrencies has changed into a way to invest in regulated, existing hard assets. In this article, we will define what exactly an ICO is, how it relates to blockchain, and how it has developed.

What is an ICO?

Initial Coin Offering, or ICO, is like an IPO for cryptocurrency. When a new digital currency is developed, money is needed to fund it. Those who invest are hoping the currency will gain a lot of traction and raise the price of the coin. Unlike IPOs, investing in an ICO cannot gain you ownership stake of the company.

During the ICO phase of a cryptocurrency’s life, interested investors buy some of the coins with virtual currency. The coins are known as tokens and act similarly to shares of a company when they are sold during the Initial Public Offering (IPO) step.

Investors who are interested in making money through ICOs are usually hoping the project will become a success, making the cryptocoin value rise higher than what they initially paid.

While ICOs operate like IPOs, they are quite different. An ICO is more closely related to crowdfunding. An IPO deals with investors and the investors of an ICO are more like supporters that are likely to get involved with crowdfunding, donating money to see projects they are interested in or may benefit from. ICOs fall away from crowdfunding, however, because the supporters have the potential to gain returns if the project is successful.

What’s Next in Digital Investments?

In more recent developments, ICOs have been utilized in a new movement of tokenizing physical assets. Tokenization works by taking an asset and converting the rights of a hard asset into a digital token. Popular assets like stocks, real estate, carbon credits, oil, and gold can be difficult to physically transfer and/or subdivide, leading buyers and sellers to utilize paper trading that represent some or all of the asset.

The most common type of digital asset sold through ICO is the utility token, or what will become a utility token when the funds are raised. A utility token is a virtual coin that is back up by a project, which is the type of investment most individuals are making.

When the token is sold before the infrastructure is in place, the investment is known as a token presale.

Security Token Offering (STO)

Unfortunately, many eager investors learned the hard way that many ICOs were fraudulent.

For those who have felt the burn of a fraudulent ICOsor are not happy with the failed promises made by Bitcoin or are not thrilled with the value which seems to be fluctuating daily, a more secure kind of token trading is developing, security tokens.

Security tokens offer users a quicker and easier transaction, with the benefits of blockchain technology, and strong legal protection. They are a digitised conventional security that many investors are already purchasing, including stocks, bonds, property, and so on. When an individual purchases a security token, they are investing in an underlying asset, traded on global marketplaces that can represent fractional ownership of the asset.  This gives security tokens a level of liquidity that wouldn’t be feasible with traditional securities.

For those who may be worried about a security token’s relationship to an ICO or cryptocurrency, there is a major difference. In a sense, an STO is a form of ICO but much more secure. When an individual purchases a security token, they own a piece of whatever the token represents, whether it be a stock, partial ownership of a piece of real estate, or other kind of asset.

With the added security and regulation of a security token, investors can rest easy knowing that Security Token Offerings aren’t the same as cryptocurrencies, nor are they related to ICOs. An individual who is comfortable purchasing a traditional security will be comfortable purchasing a security token. As stated above, a security token is simply a digitized version of a traditional security, replacing a stock certificate with a digital copy.

Like other digital assets, experts are looking to STOs as a way for peer-to-peer trading without custodians, clearinghouses, brokers, exchangers, and banks.

Fintech and You

The shift we are seeing is that of a digital age. Tech-savvy individuals are seeking easy access, convenience, efficiency, and speed in every part of their lives, including their finances. Having the ability to make transactions from the convenience of a phone or other electronic platform is what is creating this strong push towards Fintech.

Looking beyond blockchains, we are seeing technology have a hand in simple things such as payment and holding money, and more complex life aspects like investment advising. Some companies are even developing ways artificial intelligence can assist in hedge fund managing!

Buying and selling hard assets can be somewhat of a hassle, logistically. Buying and selling commodities can lead to complicated paperwork and, oftentimes, buyers aren’t ready to make a large purchase right away. Tokenization allows buyers and sellers to sell whole or fractional assets easily on ever-developing blockchains. Alpen Partners is ahead of this shift. Skip the complications and all the paperwork. If you are interested in how you can get involved in this emerging trend, contact us today!