Bitcoin was the first to introduce a revolution with the introduction of decentralized digital currency where people and businesses control their transactions instead of banks and credit cards. Now, we have another revolution in the form of Initial Coin Offering (ICO).
What is an Initial Currency Offer (ICO)?
An ICO is a relatively new fundraising tool that startup businesses can use to raise capital through cryptocurrency / tokens. Here, investors raise money in Bitcoins, Ethereum or other types of cryptocurrencies. It’s like any other form of crowdfunding.
Benefits of ICO
Like Bitcoin, the main advantage of ICOs is that startups do not have to deal with third party authorities such as banks and venture capitalists. ICOs offer a number of other benefits such as:
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Raising capital from anywhere in the world
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Potential high returns for investors
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Quick and easy fundraising
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Limited supply-demand policy so that cryptocurrency gains value in the future
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Tokens have a liquidity premium
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Slightly to zero transaction fee
ICOs started gaining popularity in 2017 A great example from May 2017 is ICO 7, a new web browser called Brave It made over $ 35 million in just 30 seconds. In October of the same year, the total ICO coins sold at that time were valued at $ 2.3 billion, more than 10 times its performance in 2016.
Risks and dangers of ICO
Like any new piece of technology, especially considering the millions of dollars involved, regulatory authorities have been criticized and scrutinized. The ICO is involved in risks, scandals and controversies that have brought their professional businesses and government officials under scrutiny.
Some of the common risks associated with ICO include:
Lack of control
This is probably the biggest problem facing ICOs. Because they do not comply with the laws and regulations of the centralized authority, ICOs face a lot of speculation, controversy and criticism surrounding their legitimacy.
In the United States, the US Securities and Exchange Commission (SEC) has yet to recognize ICO tokens and investments, leaving uncertainty about the regulation of their control. That’s why it’s best to invest in startup ICOs with affiliates.
Highh potential for scandal
Another thing is that ICOs are uncontrolled and there is a possibility of fraud or scamming attacks. Those who place bets on ICOs are usually unexpected investors.
Investors do not know if a project that has not yet been released will ever be released. The ICO does not even disclose any personal information. So they all know that this whole thing is a big money laundering scandal. On the other hand, such incidents have also happened with crowdfunding.
Superior Possibility of failure
A startup through ICO is more likely to fail to get their capital. In fact, a report conducted by a small team at Boston College in Massachusetts found that 55.4% of token projects failed in less than 4 months.
Conclusion
Ultimately, ICOs are fast and efficient crowdfunding opportunities but with considerable risks in terms of security, control and high probability of failure. It works for some startups, but most of them don’t make it. Whether it’s ethical or not is something that depends on how you consider the results and how good your marketing ability is.