Bitcoin created a revolution by introducing the first centralized digital currency in which people and businesses managed their transactions instead of banks and credit cards. Now we have another revolution in the form of the Initial Coin Proposal (ICO).
What is an initial coin offer (ICO)?
ICO is a relatively new fundraising tool that startups can use to raise capital through cryptocurrencies / tokens. Here, investors collect money from either Bitcoins, Ethereum, or other cryptocurrencies. This is like any other mass fund form.
Benefits of ICOs
Like Bitcoin, the main benefit of ICOs is that startups do not have to deal with third-party authorities, such as banks and risk capitalists. ICOs provide a number of other conveniences:
Raise capital from anywhere in the world
Potentially high returns for investors
Fast and easy fundraising
The principle of limited demand, in which cryptocurrencies gain value in the future
Tokens have a liquidity premium
Operating fees are less than zero
ICOs began to gain popularity in 2017. Since May 2017, the ICO has been a great example for a new web browser known as Brave. It grossed more than $ 35 million in 30 seconds. In October of that year, total ICO coin sales at that time were $ 2.3 billion, 10 times more than in 2016.
ICO risks and dangers
As with any new technology, especially given the millions of dollars involved, there has been criticism and research by regulators. ICOs focus on risks, fraud, and controversy, which has brought them to the attention of professional businesses and government officials.
Some common risks associated with an ICO include:
Lack of regulation
This is perhaps the biggest problem facing the ICO. Because they do not follow the laws and regulations of centralized bodies, ICOs face a lot of speculation, controversy, and criticism about their legitimacy.
In the United States, the US Securities and Exchange Commission (SEC) has not yet recognized ICO tokens and investments, which creates uncertainty over their regulation. For this reason, it may be better to invest in start-up ICOs that are affiliated with law firms.
High Potential for scammers
Another thing about not regulating ICOs is the potential for fraud or fraudulent attacks. Those who bet on ICOs are usually simple investors.
Investors do not know whether an unpublished project will ever be released. ICOs do not disclose any personal information. So, as far as they know, everything is a big dirty money laundering scandal. On the other hand, there have been cases of this with mass funding.
Ali Chance of failure
A startup that acquires capital through ICOs has a higher chance of failing. In fact, a report prepared by a small team from Boston College in Massachusetts found that 55.4% of miracle projects failed in 4 months.
In the end, ICOs are a fast and efficient mass financing opportunity, but they pose enormous risks in terms of security, regulation, and high chances of failure. It works for some beginners, but the vast majority can’t. It depends on whether it’s a moral thing, how you think about the results, and how good your marketing skills are.