Bitcoin has created a revolution by introducing the world’s first decentralized digital currency in which people and businesses control their operations instead of banks and credit cards. Now we have another revolution in the form of primary coin supply (ICO).
What is the 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, Ethereum, or other types of cryptocurrencies. It’s like another form of crowdfunding.
Benefits of ICO
Like bitcoin, the main advantage of the ICO is that startups do not have to deal with outside authorities such as banks and venture capitalists. ICOs provide a number of other benefits, namely:
Raise capital from anywhere in the world
Potentially high returns for investors
Quick and easy fundraising
The principle of limited supply and demand, in which cryptocurrencies acquire value in the future
Tokens have a liquidity premium
Little 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. It brought in more than $ 35 million in just under 30 seconds. In October of the same year, the total sales of ICO coins at that time amounted to 2.3 billion dollars, which is more than 10 times higher than in 2016.
ICO risks and dangers
Like any new technology, especially given the millions of dollars, there has been criticism and scrutiny from regulators. ICOs involve risks, fraud and controversy that have 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. Because they do not follow the laws and regulations of centralized authorities, ICOs face a lot of speculation, debate and criticism around their legitimacy.
In the US, the US Securities and Exchange Commission (SEC) has not yet recognized ICO tokens and investments, which leaves uncertainty about the decision to regulate them. This is why it may be better to invest in start-up ICOs associated with law firms.
Higherh Potential for fraud
Another thing if the ICO is not regulated is the possibility of fraud and fraud. Those who bet on ICOs are usually unpretentious investors.
Investors do not know if there will ever be a project that has not yet been released. ICOs do not even disclose any personal information. So all they know is one big money laundering scandal. On the other hand, there have also been cases where this has happened with crowdfunding.
Higher Chances of failure
A startup that gets its capital through an ICO is more likely to fail. In fact, a report conducted by a small group from Boston College in Massachusetts found that 55.4% of token projects fail in less than 4 months.
After all, ICOs are fast and efficient crowdfunding opportunities, but with considerable risks in terms of security, regulation, and high chances of failure. This works for some startups, but the vast majority of them fail. Whether it is moral or not depends on how you consider the consequences and how good your marketing skills are.