ICO: INITIAL COIN OFFERING
The new trend in the digital currency community, which is the Initial Coin Offerings, (ICO) is on the questionable side of the crypto world.
ICOs are fundraising events (coin donation) that serve as a venture capital raising tool for open source software projects and new services or even function as shares. It starts with a white paper that describes the project and its initiators and often determines the Hard and Soft cap needed to kickstart the project. The idea is a good one, blockchain technology could be used to issue new tokens or coins which are secured with cryptography and are easy to transmit peer to peer.
However, the popularity gained by ICOs among investors could be because of its profit potentials, unfortunately, the gold rush around cryptocurrency has driven a lot of quack developers and inexperienced entrepreneurs putting their expertise to working on quick money which are shallow. Historically and analytically, there has been a lot of issues rising with ICOs as a concept.
An ICO as similar as it is to an IPO is not the same in that there is almost no regulation as to what can be done with the fund. It is a Kickstarter in that your money is a donation. Traditional institutions like security, insurance, banks etc have regulatory bodies governing them but these regulations have not been extended to ICOs. There has been no legal leverage to protect your investment I.e, investment is at investor’s risk. Companies offering ICOs also face regulatory problems when the project is multinational. The jurisdictions in a country oftentimes differ from that of another hence causing a barrier for success of the concept.
ICOs Failures up to 60% have been recorded since inception. Like the Becksang in October 2017 which raised over 37,000 USD, DAO which raised over 150 million in May 2016. Some ICOs have no risk mechanisms put in place. ICOs have two major aims; to put a new virtual currency in circulation or to finance a project. Although, some like jobcoin which buyers can use to pay employment services. The concept should be towards improving the technology, reducing poverty, improve social life, improve economy standard etc with the right team and steps in place.
Cryptocurrencies itself could be hazardous let alone ICOs, a lot out of one’s control could go wrong. Studies have shown so far that a high number of ICOs are scams. Funds being stolen is the largest issue. The largest existing scam in history in Vietnam raised over 600 million USD with more than 30000 investors.
ICOs happens before a product is being built, the funds are developmental fee, hence, you are investing in a concept and not a product. Companies white paper state specifically that it’s token and not a security.
Investors tend to give more information to companies they dot really know and this could lead to phishing attempts on public keys (e-mails).
There is a need to clean-up space of ICOs issues. First things, prospective investors need to access whitepapers, fundamentals, research investment terms, team and company background, likely pump and dump. As good as projects might seem to be, not every coin is worth throwing money at.