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ICOs Are Having a Profound Effect on Tech Startups

The New Force That Is Driving Tech Startups


There is no doubt about it; ICOs have changed the future of tech startups forever. Already, major companies are thinking about creating a new model of business based on digital currencies. These companies want to utilize crypto to distribute revenue to its users. This new business modelwould give users a tradable stake in the future of a company. To achieve this, most tech startups are turning to ICOs.

How it Works

The company will create digital tokens that it issues to those interested. It then keeps a percentage of these tokens for itself. If users see value in the platform, they will purchase the tokens required to interact with it. However, the supply of these tokens is limited. That means its price will be influenced by the laws of supply and demand. Since the company also holds a reserve of the tokens, the value of the reserve rises and falls too.

In short, sales revenue will be replaced by asset appreciation. The patrol is then covered using proceeds of the Initial Coin Offering. However, you do not need to be a new company to use this model of business. A good example is YouNow, which sold $24 million of their Ethereum-based token in December 2017. The CEO, Adi Sideman, has already made it clear that they intend to change their revenue strategy.

He said,

Our business model shifted from taking a cut, like a 40 percent or 50 percent cut – like YouTube and Facebook do today – [to instead] benefit from the growth in the token and the ecosystem.

Most industry experts expect this trend to continue. However, not all companies will find it easy to make the switch to crypto. The benefit the YouNow had was that it already had a virtual currency running on its site for years.

Some are Still Sceptical

A recent article on Wired claimed that ICOs were breathing new life into stalled and failing startups. A leading crypto hedge fund manager and founder, Arianna Simpson, was recently quoted as saying:

“I’m very bullish on the crypto space in general… but to think all of these networks are going to have billions of dollars in value accrue on top of them is a little bit naive.

Besides this, she added that it was not clear whether redistributing a significant amount of revenue around the community would be beneficial for the company. She further added that many users of ICOs were just taking advantage of an eager market that buys into any pitch. For instance, most people who buy tokens do so for speculative purposes rather than using them on the platform.

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What do you think about ICOs saving startups? Leave us your opinion in the comments section below.