The world of digital currencies is so rooted in the emerging ideas and developments of the tech world that when start-ups in the space approach the more normal issue of business development, such as staffing and funding, the drive for innovative solutions is often carried across.
Enter the world of altcoin crowdsales. These “initial coin offerings” serve multiple functions for new cryptocurrencies, both raising awareness as well as funds- for the start-ups trying to gain leverage in a crowded marketplace. Getting people excited about a new coin at such an early stage also represents a more active and involved way for users and enthusiasts to get involved. If they think this new commercial offering that they wish to support is going to be a big-deal, it's a mutually beneficial arrangement for them to invest, and also spread the word.
We've rounded up five coin crowdsales, taking a look back at how some of them went wrong, where founders are now, and if the newest wave of crowd funded coins have learned the lessons from past failures and are on the road to success.
MaidSafeCoin (MAID)
Value of ICO US$7 million
Originally expected to last for 30 days, the crowdsale of the initial coin offering of MaidSafeCoin sold out within 5 hours, as investors sought to get involved in the Scottish start-up. The MaidSafeCoins are destined to be used as software tokens within MaidSafe's decentralized vision of the internet called the SAFE network, to be based upon the blockchain.
The market cap of the coin now stands at US$10.6 million, making each MadeSafeCoin worth around US$0.02, the rise in value shows how a successful crowd-sale can lead to a financial reward for these early investors.
Ethereum's Ether
Value of ICO US$18.4 million
Also in the “web 2.0” space is Ethereum, a decentralized web application platform that launched a well-publicized crowd-sale of its “cryptofuel” Ether, which the start-up sold US$18.5 million worth of during the ICO. 198 days after the crowd-sale ended however, users on /r/bitcoin noted that the company had been burning through its funds at a rate of US$100,000 per day leaving it almost penniless. The startup had also suffered from keeping much of its crowdsale funds in BTC, losing out on near 50%-worse exchange rates when they later needed to convert into USD.
Despite missed deadlines for product launch, the team has sought to clarify that they are leading the process by security rather than their original schedule, and they would rather launch a well-rounded product late than push out a flawed system on time.
NeuCoin (NEU)
Value of Token Crowd Sale US$940,000
NeuCoin is the newest altcoin offering to make the list, its recent token sale selling out in just three days and raising over US$940,000. Based on a proof-of-stake principle, the fork of Peercoin is aiming to achieve widespread usage for micropayments making this payment platform accessible by making free “taster” amounts of the coins available for new users to try it out.
NeuCoin’s crowdsale was also slightly different than other examples in two ways: firstly, it wasn’t technically an ICO, since NeuCoin previously raised over $2.25 million intended for the startup's initial funding, from its founders and a group of angel investors in return for the first coins. Angels taking part included co-founder of King (Candy Crush Saga), the SVP of business at Uber, the head of growth at Facebook, and the President of Hotwire, all of whom may be able to help develop the coin. The NeuCoins sold to these investors and those retained by NeuCoin’s team are said to have resale restrictions on them that burn off slowly over 5 years, making the crowdsale coins more liquid after launch.
The other difference for NeuCoin is that the start-up promises that any crowdsale purchases will be refunded to users if the tokens are not delivered by September 30. NeuCoin co-founder Dan Kaufman has explained that this is because the purpose of NeuCoin’s crowd sale was to involve the crypto-community rather than raise funds. Only after NeuCoin launches will the advance purchase proceeds be distributed to a trio of independent foundations (focused on code, utility, and growth) based in the Isle of Man, in place to support the decentralized NeuCoin network.
ZiftrCOIN (ZRC)
Value of ICO US$875,000 including US$150,000 of venture capital investment
Ziftr was a pre-existing affiliate shopping portal long before the idea of ZiftrCOIN itself came along. Able to negotiate discounts from online retailers for the volume of customers they could produce, Ziftr could pass these savings onto their users. By establishing their own altcoin, Ziftr reasoned they could not only close the loop on this system, but also create an altcoin with a value guarantee within their shopping network by using the discounts they received from their affiliate business.
In this way ZiftrCOINs are designed value guaranteed to US$1 per ZiftrCOIN (up to 5% of the value of a transaction) inside of their shopping network, even if the coins are trading at under US$1 on the open market. The price according to CoinMarketCap currently sits at around US$0.03.
PayCoin (XPY)
Also worth mentioning in a list of coin crowdsales is Josh Garza's and PayBase's PayCoin. Exact details and figures relating to the ICO have never been released, but an uproar emerged after earlier suggestions that PayCoin would have a supported US$20 per coin “floor” were dropped from the PayBase website, and accompanying statements about the price floor were deleted from the internet.
The price of the coins quickly dropped to around US$4 after the promised “100,000 signed up merchants” failed to emerge within the PayCoin eco-system. According to CoinMarketCap, the current value of one PayCoin stands at US$0.14, and Garza himself has relocated to Hong Kong re-branding PayBase as Mineral, and is currently being investigated by the American Securities and Exchanges Commission.
Conclusion
Coin crowdsales have a difficult history, but with each new attempt lessons have been learned from past failures. Users are also more savvy about the risks and possible rewards involved, and now appear less likely to jump into a new altcoin than they have been previously. With the speculative bubble of Bitcoin fading into memory, investors and users looking for the next generation of digital currency successes are looking for long term gains, not short term profits.