Bitcoin created a revolution by introducing the first-ever decentralized digital currency in which people and businesses control their transactions instead of banks and credit cards. Now we have another revolution in the form of initial coin placement (ICO).
What is the initial coin offering (ICO)?
ICO is a relatively new fundraising tool that startups 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.
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
From small to zero commissions per transaction
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 30 seconds. In October of the same year, the total sales of ICO coins held at that time amounted to $ 2.3 billion, which is more than 10 times higher than in 2016.
ICO risks and dangers
Like any new technology, especially given millions of dollars, there has been criticism and scrutiny from regulators. ICOs include risks, fraud and disputes that expose them to the scrutiny of professional businesses 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 United States, the U.S. Securities and Exchange Commission (SEC) has not yet recognized ICO tokens and investments, leaving uncertainty about the decision to regulate them. This is why it may be better to invest in ICO startups associated with law firms.
Awesomeh Potential for fraud
Another thing if the ICO is not regulated is that there is potential for fraud or fraud. Those who bet on ICOs are usually inexperienced investors.
Investors do not know if a project that has not yet been released will ever be released. ICOs do not even disclose personal information. So, as they know, this whole thing is one big money laundering scandal. On the other hand, there have also been cases where this has happened with crowdfunding.
Above Chances of failure
A startup that receives capital through an ICO has a higher chance of failing. In fact, a report by a small team from Boston College in Massachusetts found that 55.4% of project tokens fail in less than 4 months.
After all, ICOs are fast and efficient crowdfunding opportunities, but with quite serious risks in terms of security, regulation and high chances of failure. This works for some startups, but the vast majority of them fail. Morally it or not depends on how you view the consequences and how good your marketing skills are.