Bitcoin has revolutionized by introducing 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 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 in bitcoins, Ethereum or other types of cryptocurrencies. It’s like another form of crowdfunding.
Advantages of ICO
Like bitcoin, ICO’s main advantage is that start-ups do not have to deal with third countries such as banks and venture capitalists. ICOs provide a number of other amenities, namely:
Raising capital from anywhere in the world
Potentially high return for investors
Quick and easy fundraising
A principle of limited supply and demand in which cryptocurrencies gain value in the future
Tokens have a liquidity premium
Low 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 since its introduction in 2016.
Risks and dangers of ICO
Like any new technology, especially given millions of dollars, there is criticism and control from regulators. ICOs include risks, fraud and controversy that put them under the control of professional business and government officials.
Some common ICO risks include:
Lack of regulation
This is perhaps the biggest problem facing ICOs. Because they do not adhere to the laws and regulations of the centralized authorities, ICOs face many speculations, debates and criticisms 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 the decision to regulate them. Therefore, it may be better to invest in start-up ICOs that are affiliated with law firms.
highh Potential for fraud
Another thing when ICOs are not regulated is that there is a potential for fraud or fraudulent attacks. Those who gamble on ICOs are usually imperfect investors.
Investors do not know if a project that has not yet been launched will ever be launched. ICOs do not even disclose any personal information. So, as far as they know, this whole thing is a big money laundering scandal. On the other hand, there are cases when this happens with crowdfunding.
Higher Chances of failure
A startup that gets its capital through 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 token projects fail in less than four months.
Ultimately, ICOs are fast and effective crowdfunding opportunities, but with very serious security, regulatory 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 look at the consequences and how good your marketing skills are.