Bitcoin revolutionized the introduction of the first decentralized digital currency in which people and businesses control their transactions instead of banks and credit cards. We now have another revolution in the form of an initial coin offering (ICO).
What is an initial coin offering (ICO)?
ICO is a relatively new fundraising tool that start-ups can use to raise capital through cryptocurrencies / tokens. Here, investors raise money either in bitcoins, and in Ethereum, or in other types of cryptocurrencies. It’s like another form of crowdfunding.
Advantages of ICO
Like bitcoins, the main benefit of ICOs is that start-ups do not have to deal with third parties such as banks and venture capitalists. ICOs offer a number of other amenities, namely:
Raising capital from anywhere in the world
Potentially high return for investors
Quick and easy fundraising
Principle of limited supply and demand, in which cryptocurrencies acquire value in the future
Tokens have a liquidity premium
Slightly to zero transaction fees
ICOs began to gain popularity in 2017. A great example from May 2017 was the ICO for a new web browser known as Brave. This generates over $ 35 million in just under 30 seconds. In October of the same year, the total sales of ICO coins made at that time amounted to $ 2.3 billion, which is more than 10 times better than its performance in 2016.
Risks and dangers of ICO
Like any new technology, especially given that millions of dollars are involved, there has been criticism and oversight by regulators. ICOs include risks, fraud and controversy that put them under the control of professional business and government officials.
Some common risks associated with ICOs include:
Lack of regulation
This is perhaps the biggest problem facing ICOs. As they do not comply with the laws and regulations of the centralized authorities, ICOs face a lot of speculation, debate and criticism about their legitimacy.
In the United States, the US Securities and Exchange Commission (SEC) has not yet recognized ICO tokens and investments, which leaves uncertainty about decisions about their regulation. Therefore, it may be better to invest in start-up ICOs that are affiliated with law firms.
Higherh Potential for fraud
Another thing with unregulated ICOs is that there is the potential for fraud or fraud. Those who gamble on ICOs are usually unwanted investors.
Investors do not know if a project that has not yet been launched will ever come out. ICOs do not even disclose any personal information. So for all they know, this whole thing is a big money laundering scandal. On the other hand, there are cases of this happening with crowdfunding.
Higher Chances of failure
A startup that gets its capital through an ICO has a better chance of failing. In fact, a report by a small team from Boston College in Massachusetts found that 55.4% of symbolic projects failed in less than four months.
Ultimately, ICOs are fast and effective crowdfunding opportunities, but with quite serious risks in terms of security, regulation and high chances of failure. It works for some startups, but most of them fail. Whether this is something that is moral or not depends on how you assess the consequences and how good your marketing skills are.