Cryptocurrency Trading

Initial Coin Offering or ICO

Please proceed to last paragraph if you are looking for Malaysia ICO information. ICO is short for Initial Coin Offering. In its own way, ICO is perhaps the best way to start if you are looking to ride on the cryptocurrency wave. If you have been in the money markets for some time and understood the dynamics of what an IPO (Initial Public Offering) is, then you would possibly grasp the same concept of ICO as well. So, what are the pros and cons and the risks of ICO? Let’s start with understanding what this is all about.

Came from the word IPO in Stock Market

There are no two-ways about it. The term ‘initial’ is used here which means something new is given. In ICO, this refers to the situation where someone is going to offer a new cryptocurrency to investors. In most cases, ICOs are issued so that the development of new cryptocurrencies get the funding it needs. This has been around since 2013 through Ethereum.

How it all started

Among those that has been reported, the earliest documented ICO possible came from Ripple. This took place in early 2013 when Ripple Labs created about 100 billion XRP token and the Ripple payment system. This would be the first cryptocurrency distributed via the ICO model. The tokens were then sold in order to get the funding to continue developing the platform for the Ripple cryptocurrency.

Later that year, Mastercoin did something of a similar process. They sold a few million tokens against Bitcoin and promised to develop a layer above Bitcoin which can tokenize Bitcoin transactions. To do this, it would also execute smart contracts. From there, smart contracts become pretty much the standard for ICOs. Many other cryptocurrencies then followed suit.

The Ethereum ICO

While many other cryptocurrencies have since used ICO for funding like Lisk which got about $5 mio after selling its coins, it is Ethereum that made everyone take notice. Its smart contract model would eventually become the role-model for many to follow. This took place around the middle of 2014 when Ethereum Foundation sold its ETH against Bitcoin. For this, it was sold against 0.0005 Bitcoin for every ETH. This would become one of the largest crowdfunding transaction ever where Ethereum Foundation raised about $20 mio. In fact, such a case has become a capital base for Ethereum’s development.
This power of smart contracts used by Ethereum has become the status quo for may ensuing ICOs.

What is the Ethereum smart contract system?

How then does the smart contract system work? This platform first creates a simple token that can be used to be transacted on the Ethereum blockchain. Take note that on the blockchain, it is the Ether which is being transacted. The ERC#20 is used to standardize the contract. This is one of the easiest application of the smart contract system on Ethereum. Since then, the Ethereum host has created such a wide scope of the ICO that it has become ‘THE’ man platform used for crowdfunding for cryptocurrencies.

To further understand this, you must know what the DAO or Decentralized Authorized Organization is. This was to be the most evident demonstration of the smart contracts by Ethereum. What happened was that the DAO had some $100 million worth of Ether because of this. In exchange against the Ether DAO Token, the investors could participate in how the DAO would be governed. This only existed for a while as the DAO failed after it was hacked.
However, this concept of using ETH tokens for funding projects became a role model for new projects aiming to use crowdfunding methods.
How it works is that:

  1. Firs you transfer the ETH
  2. Then, you paste the contract into your wallet
  3. The token will then appear in your account. This means that you can transfer it to anywhere of your choice

Since the success of Ethereum, those who followed and were successful include:

  1. Melonport
  2. Iconomi
  3. Augur
  4. Singular DTV
  5. Digix DAO

What are the risks of ICO?

There are several issues that must be considered in ICOs. As it deals primarily with money, there will always be some form of risk involved. This means that you must be concerned with:

Is it legal?

At present, the term ICO is still not clearly defined. This is because the token is yet to be sold as any form of financial asset. However, it has its value. As such, ICO is sometimes referred to as a ‘crowd sale’ and the very nature of cryptocurrencies is that it has yet to be fully regulated. In Malaysia for instance, it has yet to be recognized as legal tender for purchases and transactions. Even if this is so, ICOs has become quite common and rampant even, which means that regulators are keeping a close eye on its development and acceptance in many economies across the world. At the moment, it has yet to be regulated but it does not make it illegal. The near future will see more ICOs coming around which means more regulators will surely be looking into making it policy.

Monetary Risks

While it has been a very attractive market for investors, it is all not rosy from the get-go. A lot of investors were lucky in their first options. For instance, when the ETH was sold at 0.0005 Bitcoin, it has since increased by 10,000% to become 0.05 BTC. Another good investment would be the REP or Augur Token which is currently being traded at 0.01. Then, it was sold for 0.0005. In this context, it means that for an ICO to be successful, the gain value for the Bitcoin would be about 300-500%.
But this also means that there are instances when investors met with the ugly side of ICOs. This includes cases with Omni and Lisk. These cryptocurrencies struggled to keep the value as assessed during ICO. Another issue with this is that the lucrative money market means scammers and hackers are always on the prowl. In other words, the risks are extremely high which equates to high losses (and high gains too).

Winners and Losers

To know who actually succeeded or failed in their ICO quests, you can visit Deadcoins.com where there is sufficient information about all those who tried and failed and what you should avoid. The list of those who succeeded, are below:

  1. Ripple
  2. Mastercoin
  3. Ethereum
  4. Lisk
  5. Golem

Malaysia-based ICO

Malaysia’s cryptocurrency community has been thriving in recent months with more investors taking interest in this exciting financial market. There has been quite a number of ICOs that happened in Malaysia which among them include:

  1. HelloGold – This was an ICO launched recently which raised about USD4 million. It is known for a gold digital application where investors are able to buy, sell and keep gold from as low as RM1. What makes it all the more interesting is that it is Syariah-compliant
  2. Ecobit – This is one platform developed on top of the more popular NEM or New Economic Movement system. It is supposedly an environmental-friendly blockchain project (under Green Blockchain Project). However, Bank Negara Malaysia added Ecobit into its Financial Consumer Alert list in mid-2017
  3. Lending Star – This platform is designed to allow invoices that are purchased from alternative finance marketplaces to be traded here. Investors can trade cryptocurrency here using BTC and ETH as well as fiat currency.

Besides that, there has been reports that other more known companies like Air Asia are looking at issuing their own ICO as well. One of the recent additions to this is ServisHero which has a business in Thailand, Singapore and in Malaysia with more than 200,000 users and more than 12,000 jobs posted monthly. Its board of advisors is made up of renowned individuals. If ServisHero starts using the ServisHero Coin, it would be among the earliest players in the country to embrace blockchain technology. Meanwhile, DACSEE, a ride-hailing service operator using cryptocurrency has plans to offer its first ICO in Malaysia. This came hot off the heels of a failed attempt by CopyCash Foundation.

In terms of regulation, Bank Negara Malaysia and the Securities Commission had issued a warning particularly to ICO issues that they must first obtain all necessary approval from the bodies before being allowed to carry out any regulated activities involving money like fund management and fundraising, among others.