• by Ian Kane , Columnist, April 9, 2018

There’s no shortage of hype around blockchain and cryptocurrencies. Despite daily headlines, a serious lack of understanding persists. It’s complex stuff. But, given blockchain’s transformative potential, the mental gymnastics to understand it are warranted — particularly as it relates to the initial coin offering (ICO). 

In the marketing world, blockchain will not only enable the advertising ecosystem to weed out bad players and reward trustworthy companies, it will also make it simpler to ensure advertisers’ insertion orders and terms are fulfilled properly. When they are, blockchain will enable instant payment to the supply side.

MediaPost’s RTBlog recently published a deep-dive into the funding methods behind emerging blockchain solutions for advertising. It asked: Why are some players funding their models via ICOs versus conventional methods? It’s an excellent question, and one I intend to address here. 

An ICO is similar to an IPO, but instead of selling shares in a company, you sell early access to the underlying technology asset or store-of-value that will be transacted by those who use it. Think of it like Kickstarter, except ICO participants receive a digital token with transactional capabilities. Token use leads to broader adoption, which fuels the underlying value. 

Compared to other funding mechanisms, an ICO puts the power in the hands of many. With this appealing model, company growth gets fueled by a community that supports it. And, unlike with VC-funded startups, founders don’t give up control.

Outside of a fundraising vehicle, an ICO enables deployment of the asset into the market. A coin keeps the blockchain information decentralized with continued checks and balances. Checks and balances cannot be done with FIAT currency, because it is not digitized so there’s risk of double-spend. ICOs will be popular because they give control to the public that will use the technology.

A recent article called the ICO “a terrifying trend,” and likened crypto to the dotcom bubble. This is an inaccurate comparison. During the dotcom bubble, companies with weak fundamentals and high valuations dumped shares on public markets and, after the crash, the public was left holding the bag — wiping out $3 trillion in value, primarily in North America.

With crypto, the public (not VCs) makes a coin valuable. Crypto caters to a worldwide audience and has roughly $250 billion held as of March 2018. Bubbly stock shares in a worthless company with investors in two to three countries totaling $3 trillion is not the same as a store-of-value held by people all over the world.

The value of a cryptocurrency depends on the currency’s utility and adoption. Some companies have held ICOs, but their products never materialized. Before participating, people must ensure that the company is backed by industry veterans committed to delivering a transformational product, rather than fly-by-night entrepreneurs interested in capitalizing on the latest financial market frenzy.

Ultimately, ICOs represent a new funding and dispersion mechanism for technology that will reshape digital advertising and other industries. In this new era, all participants can realize the value of a transformative product, rather than a few elite whose true interests lie elsewhere.