Billions of people are coming online as the Web expands considerably. All of them are exchanging information, data, but what about value?
Not too long ago, online payments employed slow transactions, or paying fees, making people lose money and time. Fortunately, successful attempts to bypass this costly procedure emerged, and with them, a new way of reinventing money – cryptocurrency.
Cryptocurrencies are digital or virtual currencies that use cryptography for security. The innovation behind most famous cryptocurrency today is Bitcoin, a.k.a. The Internet of Money. It is a worldwide digital payment system that transfers value as fast and efficiently as data.
The novelty Bitcoin came with was blockchain technology, keeping investments secure and safe.
How does blockchain technology work?
All online activities are organized into chunks of data named blocks which are linked to one another forming a block chain. What’s interesting is the fact that there is no need for banks to verify transactions, instead it is an ingenious system that arranges all transactions into chunks of data.
Computers – minors – monitor, verify and record the transactions, securing and solving issues in order for everything to be safe and functional. Basically, it is a public ledger that records bitcoin transactions.
It also replicates the data base of all transactions using a consensus mechanism, called proof-of-work. This mechanism prevents a common problem, that of double spending in the network.
Since its emersion, blockchain technology evolved, and other features appeared, allowing different cryptocurrencies to be launched. To be more specific, let’s have a look at ICO (Initial Coin Offering) and Ethereum.
Initial Coin Offerings are an alternative form of crowdfunding through the sales of cryptocoins or tokens. Investors buy tokens for the application of a startup they believe will be successful, the alternative being to sell if interest plummets. The bet is that the application will be in demand and thereby generate a need for the tokens, increasing their value.
To better exemplify, I will illustrate the case of a successful digital platform built inside the Ethereum Blockchain: The Nomad Community. One of their features is:
“The tokens will become tradable on the open market, after the ICO has been concluded, like any other alt coin so if you don’t like where we are heading, you can simply sell up.” CEO of Nomad Community
This demonstrates that all financial activities that are maintained on the blockchain are safe and transparent for everyone.
What is Ethereum?
Along with the Nomad Community example, I mentioned Ethereum. It is a new blockchain, open-source, public computing platform that has the advantage of simplifying the process of creating blockchain applications.
Ethereum has its own built-in programming language that helps you write software in order to solve any reasonable computing problem.
The Novelty of Ethereum
Through Ethereum, you can create a Smart Contract using EtherScript. This means that it has a protocol that defines financial rules, having a clear cryptographic way of verifying transactions, but in a decentralized way (no use for a central server).
Plus, it allows much more variety on event information. You can create any kind of financial contracts like bonds or insurance, without paying millions in legal fees. Also, you can implement whole categories of public and private law using Ethereum. So, an agreement involving transfer of value can be precisely defined and automatically enforced with the same script.
Simplifying it, the software now incorporates finance and law.
As these technologies came to fruition, ICO has developed rapidly. It has become so popular because it lets you create an economic model, using tokens as incentives.
The pros of ICO are: the possibility to raise capital regardless of your connections or background, the ease with which you can reach investors to obtain funding, and saving time throughout this process. Time is essential for any startup, and wasting it with paperwork or regulations can force you to lose momentum in an already unstable environment.
The cons of ICO are: scams, no guarantee of projects being completed, and legality.
As with any boom, ICO is surrounded by fraud and scams. For this reason, knowing where to invest and what source is trustworthy can be problematic.
Another drawback is that investors are often buying coins or tokens for an enterprise that does not even fully exist yet. In most cases, the team will have some degree of code to show what the project will look like. However, there is no guarantee of projects ever seeing the light or even being embraced by mainstream users.
Since it is a new industry, ICO is not regulated yet, creating an unstable climate. This means that the future is ambiguous not knowing into what legal realm these sales will fall.
