In the previous article (AI riding on Blockchain…makes a world that distribute work systematically and execute automatically), I pictured how blockchain that meets AI will change the world in a revolutionary way.

In this article, I‘m going to have a look at two funding methods for blockchain projects, an ICO and a Reverse ICO which has been gaining attention recently.

First, an ICO is the most suitable funding method for a decentralized structure which is one of the core characteristics of blockchain and cryptocurrency. In an ICO, a company raises capital from individuals in small amounts, not from a handful of shareholders. In a decentralized structure, small investors can claim the ownership for a project and share the profit. In a traditional shareholder capital system, a small number of capitalists has a dominating power. On the other hand, an ICO gives the general public an opportunity to become a shareholder.

In an ICO, there is a soft cap which is a lower limit and a hard cap, an upper limit. When an ICO raises more than the soft cap, the project has a green light, and when the hard cap is reached, the ICO won’t receive any more investment. The power of collective intelligence, which I mentioned in my previous articles, can launch or end a project.

Some people criticize or look down on ICOs because some ICO projects are scams. But, it is not a fair judgment for all ICOs Blockchain and cryptocurrency create communities centering on project supporters, and the projects are launched under their judgment and responsibilities.

Also, I wish you would discard prejudice that only venture capital experts with a degree from the IVY league can evaluate and predict the potential of a startup. A community with collective intelligence can do that, too. A community can support a project if the project is valid and worth pursuing by raising capital more than the soft cap. In a way, community members who put in their own money in a project are more serious than analysts who only analyze data or evaluators at a venture capital who invest with other people‘s money. A person who invest his own money and takes the responsibility will review information more vigorously and consider seriously than any smart agents.

A company who decides to have an ICO for a blockchain project doesn’t have it easy, either. Because the company will have to deal with many small investors who claim equal rights instead of dealing with just a handful of institutional investors. They also have to comply with regulations like Know Your Customer and Anti Money Laundering. They need to open community rooms in social networks like Telegram, Kakao Talk, and WeChat to keep the communication line open to all investors and engage the communities. Instead of having a meeting with a few investors in a closed room, they have to meet the crowd in a plaza. They basically have to get used to all decentralized methods.

On the other hand, a decentralized method can be more appropriate for certain projects. That is the reason why they chose a reverse ICO.

Some companies want to create a subsidiary and launch an ICO separately from their main successful business. They issue cryto coins instead of stocks to raise additional fund.

One of the prime example is German company Straramba. Straramba is a company specializing in 3D VR/AR. They are operating B2B for famous studios in Hollywood.

But recently they created a subsidiary and launched an ICO to expand their 3D VRoAR business to B2C. The company is listed on a stock exchange with existing investors, so they would not have any problem to raise necessary funding through them. But they chose an ICO.

The company‘s CEO was firm on this.

He thinks that gaining actual users who support 3D VRoAR is more important than raising funds. Instead of having a few institutional investors, he insisted on having many individual ICO investors. “I will create a community and grow the project with users who actually use and support 3D VRoAR,” said the CEO. “I will compete in the world market based on their support.”

This is what draws companies to a reverse ICO. They want to do business together with a community who support , provide capital and participate in the project. There are many other similar cases like New York-based drink-a-day startup Hooch’s TAP project and Korea-based Dodopoint‘s Carry Protocol.

They see the obstacles created by existing enterprises can be overcome through blockchain. Both TAP and Carry Protocol projects had a lot of information of individual users. But they were not in a situation to utilize the information. With Blockchain and cryptocurrency, they aim to receive permission from the users to use their personal information and give back rightful reward to them for sharing the information. Individuals have contributed the most in the commerce ecosystem, but they haven’t received any proper reward so far. These companies strive to change that. The reward is the information disparately needed by the businesses who are another pillar of the ecosystem.

Adopting blockchain will help the ecosystem to grow and stay active. That‘s why many successful businesses create a separate company and launch an ICO.

That doesn’t mean that a reverse ICO is necessarily more reliable or more stable. Each project is different. One thing is for sure though. Even an established company can be more successful when they create a community and directly communicate with the users through blockchain technology and issue cryptocurrency. More meaningful yet, the benefits are not limited to a single company or a few shareholder, but distributed to many people who participate in the community.

In this article, I explained about an ICO and a reverse ICO. In the next article, I will talk about two other methods of blockchain funding - Project Financing vs Public Financing./Yezune Choi BOSCoin CEO

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