Blockchain Technology Explained

The world of cryptocurrencies is opening endless possibilities. Blockchain is a recent technology propelling the digital currencies world. An Initial Coin Offering is a way of raising investors funds for the launch of a new cryptocurrency.

Both are explained in this article, including how the Blockchain works and how you can launch your own ICO and find investors willing to fund your digital currency project.

KEY TAKEAWAYS

  • Blockchain is a decentralized specific type of database where data entered is irreversible and that no single person or group can manipulate, thus, unique.
  • Blockchain stores data in blocks that are then chained together.
  • Different types of data can be stored on a Blockchain. Currently, the most common use is as a transaction’s ledger.
  • ICOs are a great way of raising awareness for a new digital currency and funding the project.
  • Due to the unregulated cryptocurrency market, virtually anyone can create a cryptocurrency and launch an ICO.


Blockchain Technology Explained

Blockchain is a modern technology allowing for individuals to interact with each other, without the need for an external regulator imposed by the system. In other words, Blockchain does not need governments, central banks or large corporations to regulate the relationships between individuals.

Blockchain is also an intelligent arbitration system that, through a system of fair consensus, provides validity and trust to all transactions between individuals. 

On What is Blockchain Based and Built?

Blockchain is a complex technology, but it can also be explained in plain language. Imagine thousands of computers, spread all over the world, each one in the home of a normal person, a family, a student, individuals who do not know each other and make independent decisions.

Now imagine that all these computers are part of a Blockchain network. And why are all these computers part of the network? The answer is simple. Computers connected to the Blockchain belong to people believing in the future of the cryptocurrencies, but also, for money.

Each one of these computers, whenever there is a transaction with a digital currency, take a small commission. Suppose that someone decides to pay for a cinema ticket with a cryptocurrency. Well, all those computers on the Blockchain share the commission costs of that transfer, but in turn, they also validate the transaction.

How Does the Blockchain Transaction Process Works?

Let’s imagine individual A in Europe wants to buy an item from individual B in the US, who accepts Bitcoin as payment.

After making a payment to the seller’s wallet, in Bitcoins, a new transaction in entered on the Blockchain. The transaction is then sent to a network of peer-to-peer computers, located all over the world.

This network of computers then solves mathematical problems to confirm the transaction validity, and once the transaction is confirmed as legitimate, it will be clustered into a block of data.

The block of data, once full, is chained together with other blocks (the Blockchain), containing transactions history, which will then be permanent. After that, the transaction is complete.

This process might look complicated or cumbersome, but in reality, not only is very efficient, it is also very quick. For example, when compared to card payments, to complete a Bitcoin transaction, it can take as little as 15 minutes up to hour, depending on the network congestion.

Because of the decentralized nature of Blockchain, all Bitcoin transactions can be transparently viewed by either having a personal node or by using the Blockchain.com explorer where anyone can see a few cryptocurrencies transactions occurring live, including Bitcoin, of course.

The transparency of the Blockchain is confirmed by its design and architecture, each node has its own copy of the chain, updated as fresh blocks are confirmed and added. This means that anyone who wants to can track Bitcoin wherever it goes.  

What Could be the Future of Blockchain?

In inter-personal relationships and at institutional, the next step with Blockchain could certainly affect two basic characteristics of business relationships: reputation and authenticity.

Recently recovering for a global economic crisis, a crisis in which bankers, businessmen and world leaders did not come out well in the picture, some morally and others also judicially, isn't it tempting to believe there’s a fair alternative?

Believe that out there there’s a technology that allows anyone to create a bank, that allows people to democratise benefits, and allows people to believe that they can get out of a system that no longer provides moral references.

Blockchain networks do not suffer from economic crisis, they cannot be hacked or bribed. As digital identity and data validation systems evolve, it will be very difficult to deceive or lie on the web.

Several other institutions are studying and considering the implementation of the Blockchain. Governments, investment banks, and infrastructure providers are experimenting with the technology, believing that a shared electronic ledger will help cut operational costs and increase transparency.

For example, the European Union's intention is to advance the issue of unique digital identity records so that our identity as citizens transcends the virtual world.

On the other hand, investment banks consider that Blockchain can help with execution, post-trade processing, and instantaneous settlement, thus eliminating numerous middle- and back-office processes and costs.

Blockchain may be also able to generate value by fixing current inefficiencies, for example, in the currency exchange market.

If counterparties were to exchange digital currencies that do not need a central regulating body, rather than fiat currencies, payments could be made and settled in minutes via Blockchain, rather than in days as with the current OTC systems.

The distributed nature of Blockchains would translate in enhanced transparency and immutability, as the data recorded to Blockchains cannot be altered.

What is an Initial Coin Offering (ICO)?

Initial Coin Offer Explained

Amongst the new possibilities created by the Blockchain, and its decentralized nature, the most interesting one is probably the fact that anyone can create and launch a cryptocurrency. And this can be done with the help of an ICO.

An ICO is an initial coin offering, an instrument allowing developers to raise funds from investors for a project, by issuing a digital currency, or tokens, or a cryptocurrency.

Contrary to an IPO (Initial Public Offering), where a company needs to file an arduous and complicated process with a financial regulator to launch company shares, ICOs can be launched, virtually, by anyone, with little to zero regulations, as cryptocurrencies still are deregulated.

If a digital currency developer has a project for which funding is needed, ICOs can be an option. If the project proceeds and there is investor’s capital to support it, the value of these cryptocurrencies can increase, based on the demand, and in addition, if there’s financial support behind it, launching a cryptocurrency and make it available for trading with an exchange is fast, generating even more interest.

Resuming, an ICO is a new funding method that allows early investors, or those who wish to participate, to fund new projects. The cryptocurrencies launched trough an ICO can also be traded freely via an exchange accepting them.

It is also extremely important to know the risks that an ICO entails, as it is something relatively new and has almost non-existent regulation, which is why many cases of fraud have already been detected.

Investors should remember and really consider that in an ICO real money is being invested in a recently created project, and the recovery of the invested funds, or the hope of making a profit, will only depend on the viability of the project.

Also, importantly, as in any other financial investment, an ICO has its risk, but contrary to an expansion or an upgrading project, as an ICO is connected to a developing or a new project, the risk is much higher.

There are several companies offering ICO developments, allowing, virtually anyone, to create and commercialize a digital currency project and obtain funds through an ICO.

If you are considering investing in new projects, you may also try a trusted website, like Republic.co, which only chooses projects connected to digital currencies (but also other types of projects, including new tech companies) that have been reviewed and considered to be legit and exciting.

While investors shouldn't fully trust any website offering an ICO listing, or jump into any other type of investment without doing a complete and thorough research to avoid scams (as this is an unregulated market), they can be quite useful.

And speaking of ICOs, even the Venezuelan government used it. In February 2018, the petro (₽), or “petromoneda”, was launched as a cryptocurrency issued by the government of Venezuela.

The petro coin is supposed to be backed by Venezuela’s oil and mineral reserves, and is intended to supplement the country’s plummeting national currency (bolívar), as a way of circumvent U.S. sanctions and allowing Venezuela access to international financing.


Unfortunately for investors, (the ICO raised US$3.3 billion, according to Venezuela’s government), and after much expectation, the petro coin turned out to be a bit of a flop, representing heavy losses for the ICO investors.

How to Start an ICO?

The first step and the most important thing to consider is to make sure that the people involved in the project, or at the least the founder, understands the world of digital currencies and how the Blockchain works.

As we saw above, even if anyone can make an ICO, it’s not a synonymous that in fact everyone should do one. One has to bear in mind that questions will be raised and it will be necessary to answer those questions on the spot about every little detail pertaining to the ICO.

It is also important to consider if a business, or a market sector, will actively benefit from an ICO. When all these basic questions are answered and if determined to go ahead with the project, the next step will be the draft of a white paper.

The ICO white paper is a document that should identify exactly what problems the new digital currency can resolve, or what it can offer that has never been done before, or about how an established idea can be improved with a new project. The white paper should be drafted in an engaging, informative, and very detailed form, highlighting what differentiates the project from existing ones.

As an example, the Ethereum.org white paper was a very detailed 36 pages document including the mining of Ethereum coins, accounts, applications, token systems, etc. The Ethereum white paper propelled this digital currency ICO to be one of the most successful ICOs to date.

Like in any business plan, an ICO white paper needs to convince investors and other participants to invest on the project. The Ethereum's supplied prospectors, in detail how they intend to build on the progress of Bitcoin and create something original and exciting.

After designing the roadmap for your ICO, drafting the project’s white paper is now time to make the world know about it, or, advertise the project to potential investors.

If the project is appealing, possibly, there will be two types of investors, people with knowledge of how digital currencies and ICOs work, or investing angels, who knows, maybe even Elon Musk, and people with basically no idea.

For a successful advertising campaign, it will be very important to identify the kind of people that would be most excited by this new venture, since they'll be more eager to invest on the ICO if they identify themselves with it.

For example, a new project, hypothetically the PetCoin, could be an interesting solution for people looking for pet sitters, thus, maybe reach out to some popular pet loving bloggers and youtubers, and see if they would be interested in producing some content to showcase why the PetCoin would be the biggest innovation in pet sitting and pet related services.

It’s also important to have the key people of the developing and marketing teams ready and available to answer questions related to the project and the ICO on some mainstream social media channels like Twitter and Reddit.

One additional step to promote the ICO should be considering to submit the project to some ICO aggregating websites, such as Republic.co, listing the details of several ICOs that they perceive to be quality projects.

At this stage, all that's left to do is to determine the token pricing (realistically) and its distribution. Perhaps also “mint” a prototype of the PetCoin, as a memento, or just to prove that its real. Finally, update the project website with all the available information, contact a few exchanges to list the PetCoin and… hope for the best.

Conclusion

The cryptocurrency world is still in its infancy, with several more hurdles to overcome, and improvements to be deployed. Snubbed by some, evangelized by others, the real fact is that the digital currencies world can’t be ignored.

More and more investment companies are looking at this exploding market, assessing it and its potential and slowly, but surely, corporate investment is starting to flow.

Not only that, but the possibilities and the full capabilities of the Blockchain are gradually being implemented by government agencies, like the BoJ (Central Bank of Japan), considering on launching their own digital currency.

So, who knows, maybe the PetCoin project will be the next big thing, and pet owners looking for pet sitters, or any other related services, will be transformed forever.