IOTA Looking to Replace ICOs with Smart Contract System
IOTA may be bidding to become the decentralized network of choice for the Internet of Things (IoT), but recent developments could see it lead the way in another area of the industry. Following a Medium.com post by TomTom, IOTA could redefine the way crypto projects raise money. Until now, initial coin offerings (ICOs) have become the default way start-ups in the industry have funded their ambitions. Following a surge in interest during 2017, the amount of money raised through ICOs this year has reached record levels.
However, following a report by the Statis Group, the tide seems to be turning. According to the data, 80% of ICOs in 2017 were scams. Reading into the report, many of the coins released never made it into circulation. In other words, the projects have failed to reach the milestones set out in their roadmaps and people haven’t been able to trade their coins on the open market via the leading crypto exchanges. Almost in line with the report being published, ICO funding for the month of August fell to $326 million. Although that seems like a lot, the monthly average to that point had been $3 billion.
The Market for Crypto Funding is Changing
With the market seemingly taking a turn, companies across the industry have started to look at ways to make ICOs safer and more reliable. Investoo launched Tokensales.com back in September as a way for investors to compare the latest ICOs. However, what IOTA enthusiasts are proposing is a new system altogether. Using IOTA’s digital token, MIOTA, as “fuel,” TomTom wrote that investors would be paying for a future service rather than a “speculation.” Doing this would solve two issues. Firstly, it would mean IOTA has control over the distribution of tokens. In other words, investors would be purchasing an already functioning/tradeable token.
Secondly, the system would make those who participate customers rather than investors. Companies would receive MIOTA from customers and, in return, give them a guaranteed share of the project’s future revenue. This means the token itself is being used to “fuel”, i.e. run, the service and not as a security. Using this dynamic means that IOTA’s new funding system wouldn’t fall foul of any existing financial regulations.
At this stage, TomTom has only proposed how the system would work. In his mind, it will be a cross between ICOs and Kickstarter. The driving force behind what he’s called IOTA-ISO (Initial Service Offering), would be smart contracts. All customers would be required to have two IOTA wallets. One they can use to send and receive MIOTA and another that can hold receipt tokens. These tokens will be proof that a customer has invested in a project.
“We are able to set up a smart contract system where these receipts are only sent from one wallet to another when an agreed amount of IOTA tokens is received as payment. We would not be part of such transactions whatsoever, only facilitating for this secure transaction and taking a small fee for facilitating with our technology,” wrote TomTom.
A Smarter Way to Invest in Blockchain Start-Ups
In simple terms, only once a pre-arranged set of conditions have been fulfilled will a customer receive a receipt for their investment. This receipt would then entitle them to services or other IOTA products once the project they’ve invested in starts to make money. Although IOTA-ISO is nothing more than an idea at this stage, the network has all the necessary features to facilitate such a system. What’s more, those involved with IOTA have said that a number of companies are already interested in using the new funding system.
For those looking to buy MIOTA or those already invested in the project, this bolt from the blue could lead to an unexpected price boost. Even though IOTA has taken the early lead when it comes to providing a decentralized solution for IoT services, its price is still hovering around the $0.50 mark. With a market cap of $1.4 billion, it’s currently sitting just outside the top ten cryptocurrencies (it’s ranked 12th at the time of writing). Although that’s impressive for a crypto project that was launched in 2015, there’s still room for growth. Paving the way for a new way of funding crypto projects would certainly bolster the company’s future fortunes.