Bitcoin has created a revolution by introducing the first ever decentralized digital currency in which people and companies control their transactions instead of banks and credit cards. We now have another revolution in the form of initial coin supply (ICO).
What is the Initial Coin Offer (ICO)?
ICO is a relatively new fundraising tool that startup companies can use to raise capital through cryptocurrencies / tokens. Here, investors raise money either in Bitcoins, Ethereum or in other types of cryptocurrencies. It’s like another form of crowdfunding.
Advantages of ICO
Like Bitcoin, the main advantage of ICO is that startups do not have to deal with third-party authorities, such as banks and venture capitalists. ICOs provide a number of other benefits, namely:
Raising capital from anywhere in the world
Potentially high returns for investors
Quick and easy fundraising
A limited principle of demand and demand in which cryptocurrencies gain in 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 generated over $ 35 million in just under 30 seconds. In October of the same year, total ICO coin sales at the time were worth $ 2.3 billion, more than 10 times more than in 2016.
Risks and dangers of ICO
Like any new technology, especially given the millions of dollars involved, there has been criticism and oversight by regulators. ICOs involve the risks, fraud, and controversy that put them under the scrutiny of professional companies and government officials.
Some common risks associated with ICOs include:
Lack of regulations
This is perhaps the biggest problem ICOs face. Because they do not comply with the laws and regulations of centralized authorities, ICOs face an abundance of speculation, debate, and criticism about their legality.
In the United States, the U.S. Securities and Exchange Commission (SEC) has not yet recognized ICO tokens and investments, leaving uncertainty about deciding on their regulation. So it may be better to invest in startup ICOs that are affiliated with law firms.
High Potential for fraud
Another thing with unregulated ICOs is that there is a potential for fraud or fraud. Those who bet on ICOs are usually unsophisticated investors.
Investors do not know if a project that has not yet been published will ever be published. The ICO does not even disclose any personal information. So, as far as they know, this whole thing is one big money laundering scandal. On the other hand, there have been cases where this has happened with crowdfunding.
More Chances of failure
Beginners who get their capital through ICOs have a higher chance of failure. In fact, a report conducted by a small team from Boston College in Massachusetts showed that 55.4% of token projects fail in less than 4 months.
In the end, ICOs are fast and effective crowdfunding opportunities, but with fairly high risks in terms of safety, regulation, and high chances of failure. It works for some startups, but the vast majority of them fail. Whether it’s something moral or not, it depends on how you consider the consequences and how good your marketing skills are.