June 15, 2018 - Initial Coin Offerings (ICOs) have been drawing a lot of attention in recent times. And the fact that they are still very young in the world of cryptocurrency hasn't deterred individuals from forming their own opinion about them – some good, some bad.
On the one hand, people are excited about the fact that startups can now access funds more easily and much quicker than before. On the other hand, the naysayers cannot get past the fact that ICOs are still very unregulated and, therefore, have the appeal of fraudulent scams. Regardless of these differing opinions, one thing is still sure: ICOs are beginning to revolutionize the way startups will receive funding.
Nonetheless, it will still be misleading of us to categorically tell you that ICOs are 100% flawless. They are not. But, to be fair BTXchange makes a good point about how the good of this new and intriguing concept far outweighs the bad. True, there’s been a lot of snafu surrounding ICO transactions like fraud, theft, outright failure. Still, Ethereum – currently the second largest cryptocurrency after Bitcoin – wouldn’t exist without ICOs.
So, our advice is to hold off the judgment till you have the full details of this concept. You just might appreciate the logic behind it. And then again, it’s not like traditionally funded projects are immune to such mishaps as have been associated with ICOs.
Anyway, to get you up to speed with ICOs, we have prepared this article in simple language just for you. Of course, it isn't going to be everything you need to know about ICOs, but it will make a darn good foundation on which to build further knowledge.
What Is An ICO?
An initial coin offering is a means of crowdfunding. So, usually, someone wants to embark on a project, and to fund it, she releases a new token into the market (this is a much longer and complicated process than is presented here), which people buy and then she gets funded. So, you see, it’s very similar to an initial public offering, except that people who buy tokens do not necessarily have a stake in the said project/company.
How Have ICOs Fared So Far?
In 2017, it took barely 7 months for ICOs to raise a total amount of $1.3 billion, approximately. We kid you not – more than a billion dollars! (actual amount is $1,252,676,352). And currently, its market capitalization stands at over a hundred billion dollars. Of course, experts, companies, and even whole countries are panicking and questioning. And this has led many to take drastic actions.
For example, Google is set to discontinue the promotion of ads for cryptocurrencies and other related ads in June 2018, while Gibraltar is considering placing some form of regulation on ICOs as commercial products.
Of course, this is bad news as it defeats the very purpose of ICOs in the first place. Regulation makes ICO funding less accessible, much slower, and ultimately conquers the spirit of the blockchain, which is decentralization.
South Korea and China are the only two countries where ICOs have been banned, though. The individual governments claimed to do this to protect their own businessmen seeing the “fraudulent” nature of ICOs.
However, South Korea seems to be coming around as it recently announced that there are plans to lift off the ban placed on ICOs in the country in a few short months from now.
Now, What Are The Pros And Cons Of ICOs?
Like we said, the ICO system isn’t perfect. But then again, what is? If you eventually choose to try ICOs – and we hope you do – you should realize that it’s not all fun and games. You have to bear in mind the risk of landing some pretty heavy hits.
- People who buy ICOs are simply funding the startup. They don’t necessarily own a stake in the company. It’s like an exchange, they give Bitcoins/Ethereum in exchange for the tokens which they can trade up later. For IPOs, you have to give up some stakes in your company to get funded.
- Little to no regulation: This can be both good and bad. But for the good, little regulation means that it is easier to access and funding is much faster. IPOs, on the other hand, are laden with regulations which make them safer, but ultimately slower.
- They are open to anyone at all. This, again, is due to the little regulation on ICOs. You don’t need to have certain qualifications or status to access ICOs. IPOs tend to be more selective and not every random person can just access them.
- A very sordid history: ICOs have a pretty bad history of fraud, scams, and theft. So, it isn’t exactly easy trusting the process, even though they gave us Ethereum.
- ICOs are only offered for a very short time in comparison with IPOs that last quite a while.
- Little or no regulation: like we said, this attribute of ICOs is good and bad. With no regulation, ICOs are a very risky venture. This here is the reason ICOs are so prone to fraud and theft. IPOs might be a slower and more complicated process, but they are ultimately safer because there are lots of ways processes are kept in check.
Talking about fraud and theft, now may be a good time to brief you on some major ICO scams
- Giza, a crypto startup, scammed its more than 1,000 investors with a fake ICO which raised about 2,100 Ether ($2.4 million) in February this year.
- Plexcoin, another startup, once promised an unrealistic (and unattainable) ROI of 1,354%. When the US Securities and Exchange Commission found out, they froze Plexcoin’s gathered revenue of $15 million.
- Another set of scammers, this time in 2017, also walked away with $2.7 million to $4 million dollars from a fake ICO.
Finally, let’s end this article on a happy note and check out how much certain industries have raised so far through ICOs.
The blockchain platform naturally leads this category with a total sum of $1.5 billion. This is followed by the network communications industry with a total of $673 million. Other sectors and in their respective orders include: finance, payments, and drugs/health. And each of them clocked in $415 million, $230 million and $210 million respectively.
We hope we’ve been able to educate you with the basics of ICOs. Please do yourself some good and find out more about it, and if you decide to go for it, research even more.
Till next time, ciao.
June 15, 2018 18:00 HKT/SGT
Topic: Press release summary
Sectors: Currencies, ICO's
From the Asia Corporate News Network
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