Risks, Rewards, and Dangers of ICOs
Bitcoin produced a dramatical change by introducing the first-ever decentralized digital money in which people and businesses control their transactions instead of edges and credit cards. Now, we have another dramatical change in the form of Initial Coin Offering (ICO).
What Is An Initial Coin Offering (ICO)?
An ICO is a comparatively new fundraising tool which startup businesses can use to raise capital by cryptocurrencies/tokens. Here, investors raise money in either Bitcoins, Ethereum or other types of cryptocurrencies. Its like another form of crowdfunding.
Benefits of ICOs
Like Bitcoin, ICOs main assistance is startups dont have to deal with third-party authorities such edges and venture capitalists. ICOs provide a number of other conveniences namely:
Raising capital from anywhere in the world Potentially high returns to investors Fast and easy fundraising Limited supply-need rule in which cryptocurrencies gain value in the future Tokens have a liquidity premium Little to zero transaction fees ICOs started gaining 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, the total ICO coin sales conducted at that time were worth $2.3 billion, which was more than 10 times its performance in 2016.
Risks and Dangers of ICOs
Like any new piece of technology, especially considering millions of dollars are involved, there has been criticism and scrutiny from regulatory authorities. ICOs have involved risks, scams, and controversies which have brought them under the scrutiny of specialized businesses and government officials.
Some shared risks associated with ICOs include:
without of Regulation
This is perhaps the biggest issue facing ICOs. Because they do not to pay attention to the laws and regulations of centralized authorities, ICOs confront plenty of speculation, argue, and criticism surrounding their legality.
In the United States, the U.S. Securities and Exchange Commission (SEC) has however to recognize ICO tokens and investments, which leaves uncertainty around ruling on their regulation. Thats why it may be better to invest in startup ICOs that are connected with legal firms.
High possible for Scams
Another thing with ICOs being unregulated is that there is possible for fraud or scamming attacks. Those who place bets on ICOs are typically unsophisticated investors.
Investors dont know whether a project that hasnt been released however will ever be released. ICOs dont already disclose any personal information either. So for all they know, this whole thing is one big money laundering scandal. however there have also been instances of this happening with crowdfunding.
Higher Chances of Failure
A startup getting their capital by ICOs have a higher chance of failing. In fact, a report conducted by a small team from Boston College in Massachusetts, found that 55.4% of token projects fail in under 4 months.
In the end, ICOs are fast and efficient crowdfunding opportunities but with pretty hefty risks in terms of security, regulation and high failure chances. It works for some startups, but a large majority of them dont make it. Whether it is something that is moral or not falls on how you consider the consequences and how good your marketing abilities are.
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