Bitcoin ushered in a revolution by introducing the first-ever decentralized digital money, in which individuals and businesses, rather than banks or credit cards, control their transactions. Another revolution has arrived in the form of Initial Coin Offerings (ICOs) (ICO).
What Exactly Is An ICO (Initial Coin Offering)?
An initial coin offering (ICO) is a relatively new fundraising technique that allows startups to raise funds using cryptocurrencies or tokens. Investors raise funds in the form of Bitcoins, Ethereum, and other cryptocurrencies. It’s similar to a different type of crowdfunding.
Benefits of Initial Coin Offerings (ICOs)
The fundamental benefit of ICOs, like Bitcoin, is that they eliminate the need for entrepreneurs to engage with third-party authorities such as banks and venture capitalists. ICOs also offer a number of other advantages, including:
Raising funds from anywhere on the planet
Investors could get a lot of money.
Fundraising that is quick and simple
Cryptocurrencies will gain value in the future due to the limited supply-demand theory.
Tokens have a premium for liquidity.
Transaction fees are minimal to non-existent.
In 2017, the popularity of initial coin offerings (ICOs) began to grow. The ICO for Brave, a new web browser, was a wonderful example from May 2017. In less than 30 seconds, this generated over $35 million. The total ICO coin sales completed in October of that year were worth $2.3 billion, which was more than ten times its performance in 2016.
The Risks and Perils of Initial Coin Offerings
Regulatory authorities have criticized and scrutinized the device, as they do every new piece of technology, especially when millions of dollars are involved. Risks, scams, and scandals have surrounded initial coin offerings, bringing them under the attention of professional businesses and government officials.
The following are some of the most common risks linked with ICOs:
Regulation is lacking.
This is likely the most serious problem that ICOs face. Because they do not follow the laws and regulations of centralized authority, ICOs are the subject of much speculation, debate, and criticism.
The Securities and Exchange Commission (SEC) in the United States has yet to recognize ICO tokens and investments, which means that a decision on their regulation is still pending. As a result, it may be preferable to invest in startup ICOs backed by law firms.
Scams have a high chance of succeeding.
Due to the fact that ICOs are unregulated, there is a risk of fraud or scamming attacks. Those who invest in initial coin offerings (ICOs) are often inexperienced investors.
Investors have no way of knowing if a project that has yet to be produced will ever be released. ICOs also do not reveal any personal information. So, for all they know, this is a massive money laundering scheme. However, there have been cases where this has occurred with crowdsourcing.
Higher Probability of Failure
A startup that raises money through an initial coin offering (ICO) has a higher likelihood of failing. In fact, according to a study undertaken by a small team from Boston College in Massachusetts, 55.4 percent of token ventures fail in less than four months.
Finally, initial coin offerings (ICOs) are quick and economical ways to raise funds, but they come with significant security, regulatory, and failure concerns. It works for some businesses, but the vast majority of them fail. Whether it is moral or not depends on how you think about the repercussions and how excellent your marketing skills are.