If you have been dabbling with cryptocurrencies, you would have already heard a lot about ICOs (Initial Coin Offerings). With startups now looking to sell their own unique virtual currencies to fund and/or power blockchain projects, there has been a lot of dissonance in mass media about ICOs, making it hard for any newbie to understand.
Before we get too much further, just some quick housekeeping. We are not financial advisors or brokers. This is an information piece, it is not financial advice - if you need financial advice please see a licensed professional. Nothing contained in this posts constitutes a solicitation, recommendation or endorsement of any particular ICO, token or other crypto investment.
With that out of the way, what are ICOs, what makes them valuable, are they a scam, and what do I think is the future of ICOs?
What exactly is an ICO?
An Initial Coin Offering (ICO) is essentially a fundraising instrument used by organizations to raise capital from private and public investors. They are similar in concept to Initial Public Offerings (IPOs) that deal with traditional stocks. That said, ICOs do not have the same levels of stringent scrutiny. Another fundamental difference is that an ICO tends to be related to the use of blockchain technology to deliver a solution or service.
Aren’t ICOs just a scam?
According to ICO Data, in 2017 we saw 884 ICOs that raised a massive $6.07 billion in investment. It’s no surprise that the ICO space would inevitably attract certain questionable elements to the party.
ICOs are still mostly unregulated now. The SEC has given out caveats to potential investors, and both China and South Korea have outlawed ICOs due to them being unpredictable and disruptive. Furthermore, the various ICO telegram channels tend to be prolific with scammers impersonating ICO officials in an attempt to defraud potential and naive investors. The key to managing these risks, like with any investment, is to do your own research (DYOR). With some basic googling skills, it’s not difficult in validating whether the people behind an ICO are capable of achieving their goals.
Similarly, the upsides to ICOs are too enormous to ignore. Hence we are seeing investment frenzy in the ICO space right now. Everyone wants to be lucky and hope they buy the next Bitcoin. We won’t know if any of these ICO projects could succeed or fail. Hence it is still a mostly speculative form of investment.
What is the legality and regulations around ICOs?
As mentioned earlier, a few countries have already banned ICOs. Facebook and Google have also stopped people from advertising ICOs using their advert platforms. But everywhere else in the world, ICOs remain in a grey area and it won’t be long until we see the legality of ICOs being tested in court.
However, the crypto community has started to take steps to address some of the common concerns. CoinList, a trading platform for ICOs, has partnered with Protocol, AngelList, and Cooley to launch the SAFT Project.
In essence, SAFT is a compliant framework for the sale of tokens that aims to protect the interests of investors.
What’s next for ICOs?
If 2017 was the year of the Ethereum, 2018 looks to become the year of the ICO with several pioneer ICO-backed projects slated to hit the main stage.
With the implementation of SAFT, we are starting to see questionable areas between blockchain technology and US legislation been answered.
Outside of the US, ICOs have allowed startups to raise sizeable capital in an international marketplace with little effort. ICOs have become somewhat of a disruptor to conventional VC fundraising methods across the globe.
If ICOs are adequately implemented, this could forever alter the way we make investments. Resilient startups with the business acumen to execute their strategies can now access a worldwide capital market free from border restrictions
This is truly an exciting time to be dabbling in this space. As more organizations tap into the potential of blockchain technology, we will start to see a range of new and exciting projects in this space. What better vehicle than an ICO to help fund those projects.
That said, I don’t think we will see as many moon shot ICOs that people were accustomed to last year. As the market begins to normalize, and we start to see rules and regulations coming into effect, it will no doubt impact the speculative “to the moon” or “when lambo” price surges we saw in December 2017.
But, this is crypto and anything can happen.