What is an ICO & how does it work?
According to The Economist, ICOs are digital coupons, tokens issued on an indelible distributed ledger, or blockchain, of the kind that underpins bitcoin, a crypto-currency.
An ICO is effectively a Kickstarter campaign that uses blockchain-based “tokens” (crypto currencies or digital assets) to raise money. Being an alternative to crowdfunding, ICOs have the potential to transform the way companies capitalize themselves. The funds are paid via Ethereum or Bitcoin and in exchange for these funds, the investors get back tokens.
So far, over the last 12 months ICOs have raised astonishing amounts. In April, money raised via ICOs hit $100 million, only to double in May and hit over $550 million in June. This was the first month ever when money raised through ICOs surpassed angel and seed VC funding.
Some of these projects are working on important problems that solve real-life issues, such as Civic, a U.S. startup who sold $33 million in digital currency tokens for its identity verification project in a public sale.
A hot new trend among startups
Having helped run several successful ICOs, at Queue-it we’ve witnessed the increased interest among startups around the world. Startups with little to no revenue have raised millions of dollars by issuing tokens through ICOs.
The increased popularity of ICOs among the startup community is largely due to the facts that the process of running an ICO is less rigid than seeking venture capital and startups do not have to prove their idea in the marketplace before receiving funds. Pre-announcing the planned token sale, publishing the terms in a whitepaper, and telling the story and goal of the project is often enough for investors, even though they have to control and calculate the potential risks associated with the project in greater detail.
Also, there are no current regulations or legal guidelines for this new type of offering. The main benefit is the blockchain on which they’re based as it provides anyone from anywhere the ability to invest without being told they are unaccredited.
Key considerations in planning for a successful ICO
In our discussion with startups, we have seen that there is a tendency to focus on reaching a target and creating popularity around the event, and less on assessing the risk that comes with running an ICO.
While the success of ICOs is good news for startups, it does raise serious questions about the scalability of the Ethereum network. If the network can’t handle the surges in transactions during an ICO, this will make it difficult for Ethereum to be used for any practical purpose during that time.
Having noticed several ICOs that were not extremely successful, we have outlined the 5 most critical considerations you need to make prior to launching a successful ICO:
The hype that is created during these events brings along interest and engagement and creates traffic peak at the beginning of the sale or registration. Some startups are creating strategies to secure a purchase for every contributor, by enabling them to pre-register ahead of the sale. In situations like this, if the pre-registration is time-limited, traffic peak is created even before the beginning of the sale. Even though you try to offset the traffic peaks by setting a sales cap per person, experience shows that people do not change their behavior and come to your website early, anyway. At Queue-it we saw many website outages due to end-user overload during ICOs, even though the timing for the sale was in many cases heavily predicted. During these peak events, websites can’t usually handle the traffic, therefore they become slow or unresponsive, which creates technical issues, as well as a poor end-user experience
Even if the traffic in general only poses minor problems, we’ve witnessed times when the Ethereum network is having issues, when forced to process too many requests at the same time. In situations like this, when the transactions between ETH(Ethereum)/BTC(Bitcoin) network and the tokens are influenced, the balance doesn’t update for a few hours or not at all, which leaves investors with empty accounts, but no tokens. In this situation systems like virtual waiting rooms can act like a security net for websites by making sure that end-user flow during high traffic events is kept at a capacity their infrastructure can handle.
While investors are waiting to make their token purchases, startups can smooth the situation by providing relevant information inside the virtual waiting room page. The startups who run the token sale will be able to include information such as how long investors should wait until they purchase, whether there is a cap per person, what the minimum amount required for purchase is, or how many tokens are left in stock, all while the queue is running.
Since risks for investors are sizeable, credibility is key when running an ICO. An informative queue webpage that is displayed to customers for the wait can also provide startups a unique opportunity to feature additional branded content to a captive audience. Virtual waiting rooms can help you deliver a credible experience not only by allowing you to add a customized logo and skin to the queue page, but also by giving end users instructions on how to purchase, which makes the process smoother and faster.
A smooth and informative flow of the sale also aims to eliminate fraudulent activities such as potential situations when scammers claim fake account addresses to be the real account information source of the sale. Having mechanisms in place that prevent fraudsters and bots from accessing the sale is also paramount. Pre-queueing solutions can help increase the security of the sale by verifying if every contributor is a real user or a bot, before they access the ICO. Bots have a benefit, when a pre-queue is not used, therefore the use of a pre-queue system will create a fair experience for everybody and democratize the purchase process.
About the author
Tatiana Troščáková has worked extensively with ICO customers and has a keen interest in business, culture and language in the global economy. She is also undertaking studies into the intercultural aspects of internationalization to better grasp the skills required for a career in high level and complex sales transactions. Tatiana is an Account Executive at Queue-it.