The whitepaper detailed their expertise in exchange platforms and positioned their token as an integral part of a broader, evolving crypto ecosystem. ICO whitepaper is the central document that convinces investors, partners, and potential users that your project has substance and a viable path to success. While there’s no single perfect template, certain core elements and best practices contribute to a powerful whitepaper. In Part 3, I plan to highlight a few of the most attractive areas for investment in the space. If you’ve enjoyed these posts and want to see more VC-related content, please follow my publication on twitter!

Therefore, we decided to retain only the project rating because it is the most general rating that captures the greatest number of project features. The same occurred with Twitter followers and profiles followed by the project. There is proof that the activity of the social network account is also important because there is a proven negative effect on the number of accounts the project is following and the project’s success (Albrecht et al. 2019).

It is also suggested that projects located in larger cities are more successful than others (Ralcheva and Roosenboom 2016). In Part 1, I walked through the history of both the modern internet and blockchain technology. In Part 2, I’ve focused on explaining how the technology works, including articles on blockchain protocols, decentralized applications, and this post on initial coin offerings. There are a number of sites that list current and up and coming initial coin offerings including Reddit, Cyber Fund and even social media sites such as Facebook. When a company decides to launch an ICO, they will typically create a whitepaper outlining the details of the project, including its goals, timeline, and how the funds raised will be used.

Initial Coin Offering Whitepaper and Why Does It Matter

Investment in ICOs is done using cryptocurrency, and several cryptocurrencies may be accepted by the promoters of a project. Campaigns accepting multiple currencies are more successful than those that accept only one (Charlotte et al. 2019; Lee et al. 2019). Accepting several currencies is evidence of a project’s quality, revealing technical knowledge, since accepting numerous currencies requires blockchain expertise (Amsden and Schweizer 2019). There are concerns regarding the huge volatility of cryptocurrencies (Frizzo-Barker et al. 2019).

  • Investing in ICOs can offer several benefits for investors, especially those who are looking for high-risk, high-reward opportunities.
  • It should be noted that the whitepaper is, first and foremost, a business document, so you should not overload it with too much information.
  • We were able to assemble a database and test most of the variables concerning the success factors of ICOs mentioned in the literature.
  • On May 12, 2021, when the price reached $4,382,73, investors got a 1,408,903% return on investment.

We decided to remove all these variables because we could not be certain of the time when they were attributed. The ratings are usually attributed before the ICO starts and are updated throughout the campaign and again after it is concluded. Although we are confident of their correct usage in the model, we could not ensure that they were completely unbiased and we, therefore, decided to exclude them. In our preliminary analysis, we concluded that the ratings for the team, project, and product had a positive impact on project success, and the rating for the vision had a negative impact on the project. This is due to the fact that visionary projects tend to be more difficult to achieve and harder to understand, creating a barrier for investment (Gompers and Lerner 2001).

Legitimate ICOs will explain in their whitepaper then they will return investor funds if they do not reach their cap. To do this, you have to know how to buy Ethereum (ETH) or how to buy Bitcoin (BTC). Typically, an ICO functions as an alternative to traditional fundraising methods such as private investment offerings or IPOs. But the legality of cryptocurrency or digital assets is not guaranteed to persist. In 2017, the People’s Bank of China officially banned ICOs, slamming them as counterproductive to economic and financial stability.

Start up companies are generally some form of an entrepreneurial venture, which will take the form of a new, rapidly expanding business targeting the needs of a marketplace by way of innovative products, processes and services. Active and up and coming ICOs can be found through various sites, with the purchase of cryptocurrencies being made through the selected exchange, with investors also able to buy directly through the creators official website. Concepts are getting more and more innovative and the speed with which capital is raised is getting faster by the day and, without the regulatory oversight things could burst before the likes of the SEC catch up.

After performing the current research, we found that some variables have a strong impact on project success, for instance, the whitepaper. For future studies, it would be interesting to isolate these variables and focus on their effects. Regarding the whitepaper, it would be interesting to analyze its smallest aspects to understand what is most important. Therefore, it is important to analyze the behavior of tokens in the secondary market in terms of volatility, tradability, returns for investors, and many other factors. Building on signaling theory, another issue is raised concerning the high information disparities between the project’s promoters and investors during supra-system interactions.

Initial Coin Offering Whitepaper and Why Does It Matter

Another successful example is Ethereum’s ICO, which took place in 2014, when investors purchased 50 million ether tokens for $0.311 per item. On May 12, 2021, when the price reached $4,382,73, investors got a 1,408,903% return on investment. Regardless of whether you are new to ICO development or an expert who has completed many successful projects, there are specific steps you should take to launch an ICO to win the fundraising game. Though this method offers many benefits over traditional funding solutions, it can be challenging if you rush into it unprepared.

Initial Coin Offering Whitepaper and Why Does It Matter

Before diving into the depths of how the ICO process works, it’s helpful to have a little bit of background on what exactly these investors are buying. As I discussed in my previous post, coins and tokens are the incentive mechanisms for blockchain protocols and decentralized applications. Coins / tokens are used to incentivize network participants to improve and maintain the network.

The data on ICO projects can be difficult to obtain because they are dispersed among several sources. Several websites have been collecting reliable data on these projects, which allows for their study. Nevertheless, ICOs are disruptive projects and a recent phenomenon that does not follow many specified rules. Therefore, the data on them are characterized by several outliers in several categories of analysis, which makes it harder to apply the standard OLS method for regression models. These reasons make the use of a robust regression for the analysis of these projects a strong solution to overcome normality issues, among others. In this study, both the standard OLS method and the robust regression method obtained similar results.

The role of information is also highlighted in systems theory, as it is particularly important in communication in accordance with information theory. The flow of information should be from the sender to the receiver, who then provides crucial feedback on the continuity of the flow (Bertalanffy 1968). An important principle related to information is the distinction between open, closed, and isolated systems. In open systems, the participants exchange energy, matter, people, and information, whereas in closed systems, there are exchanges of only energy, and in isolated systems, there are no exchanges (Mele et al. 2010). Open systems theory (OST) builds on these concepts to look at organizations and their relationships with the environment in which they operate. It is argued that organizations must be able to process information about their environment and adapt, in order to thrive.

But this lack of regulation also means that someone might do whatever it takes to make you believe they have a legitimate ICO and abscond with the money. Of all the possible funding avenues, an ICO is probably one of the easiest to set up as a scam. We recommend balancing technical and nontechnical language to achieve the best results with your whitepaper. Business owners can either develop crowdfunding for themselves, or hire a seasoned ICO services company. While ICOs aren’t illegal all around the world, there are at least ten countries where they are.

Investors will also need to be aware that certain wallets may be incompatible with the tokens and are therefore not visible following purchase and receipt. For this reason it’s essential to have a wallet which permits the export of private keys, so that it is permissible to transfer the tokens to a new compatible wallet. Post ICO, there are some great returns for investors that continue to grab the headlines, Ether not alone.

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