In the digital era, it is expected that new financial systems, such as BlockChain and Crypto Currency, emerging as parallel alternative systems, will gain more recognition and eventually replace the deteriorating old financial system. Together with this phenomenon, the players of the old system will become a left-over component as they cannot adjust to the new system.
The first example is Crypto Currency under BlockChain. It is establishing a new financial and banking context. In the emerging context, trust in the monetary system with the state as the center (Centralization) is diverted to the monetary system without the state as the center (decentralization). Originally, the monetary system was supervised by government agencies, while the new monetary system is controlled by mathematic algorithms which are processed by computers of ordinary people around the world. But their network lays the base of the new monetary system which does not rely on governmental mechanisms any longer.
The old monetary system is controlled by the government of each country, supply and demand, and inflation. As a result, foreign currencies rates fluctuate and depreciate according to inflation rates. However, BitCoin currency is produced in relation to the increasing role of BitCoin Miner in response to the growing demand for an exchange medium. In the case of Ethereum Coin, although its highest ceiling is not limited like BitCoin, the designed algorithms will produce new coins in order to respond to demand without causing inflation.
On the contrary, the monetary system under government control is losing civil confidence, as governments try to add more money into the market. For example, the Venezuelan government added more money into the market, and consequently caused 160% inflation per year. Finally, the government solved the problem by canceling the old currency and creating a new currency. Abundant amounts of the old currency could be exchanged for only little amounts of the new currency. The same phenomenon also occurred to the Burmese Kyat.
However, BitCoin, as a civil currency, is just an example of a challenge to the monetary system under the supervision of the government. Eventually, BitCoin will not just be a monetary alternative, it will also be an alternative for raising capital, aside from the capital from the Stock Exchange Market under the control of the Securities and Exchange Commission. It is called Initial Coin Offering (ICO) – raising capital without the role of the Stock Exchange Market.
New companies now raise capital through the produced Coin. This is the second miracle of Coin. Initially, it served to replace existing currencies. Now, it replaces stocks in terms of raising capital. ICO has become more popular and could be a digital disruptor for the stock market because;
- ICO requires less operation costs than IPO costs and costs for entering into the stock market. ICO does not require the costs for exchanging stocks in the market, preparation of the prospectus, or employment of Due Diligence.
- ICO can raise capital faster than IPO.
- ICO can raise capital from around the world at once without limitations such as the control of the Stock Exchange Market of any country.
- ICO is not controlled by any agency. ICO can raise capital without the role of the Stock Exchange Market. Hence, if the investment laws of any country are an obstacle rather than support, the company can register itself in any country and launch ICO in that country.
Matchpool is an example of an enterprise of the new generation which created its platform from Blockchain (which is anonymous and transparent) to create an online community called “Pool”. “Pool” is used to find the right couple and cat lovers. Pool owners gain benefits when a new member joins his or her pool. To own a Pool, one needs to invest via Initial Coin Offering system (ICO). Matchpool creates its own digital currency called GUP. Its aim was to raise 5.5 million US Dollars and launch the service in the first quarter of the following year. However, after 2 days, Matchpool reached its goal and has already completed raising its capital.
Atom Coin raised capital of 16 million US Dollars in only 30 minutes. Afterwards, BCAP Coin raised capital of almost 10 million US Dollars in only 6 hours. These incidents indicate the change in the money and capital markets. Later on, I will discuss how business models rely on Coin functions.