Initial Coin offerings (ICO’s), or crowdfunding is the cryptocurrency equivalent of buying shares at the launch phase of a new business venture or technology project. In place of investors getting share certificates, they will receive tokens in the new venture, which can increase in value based on the success of the project.
The first ICO was held by Karmacoin in 2014 and has grown so much in popularity that that there are currently about 20 active ICO’s per month. Ethereum, with more than 50% of the market share, is the leading blockchain ICO platform.
Over the past two years, more than $440 million has been raised via ICO’s, with some projects raising up to $153 million in less than a few hours.
The Value of ICO’s
ICO’s are an effective way for technology startups to raise the capital they need and as they are open to the general public, people across the globe can invest in a startup they believe in without the normal restrictions and legalities placed them.
The tokens are generally available at a low cost, so investors can easily and affordably help fund the venture and then reap the benefits as the project grows.
Investors also have the opportunity to have a say in where the future technology developments take place, as with many various projects happening at the same time they can select which one they wish to invest in.
The Risks of ICO’s
As ICO’s and cryptocoins are unregulated, the risk of scams, fraud, and hacking is ever present. More than 10% of the ICO’s launched last year were scams with no substantial projects behind them, resulting in the participants losing their investments.
One of the key risks to the organisations launching ICO’s is hacking. Engima, a de-centralised platform, planned on launching an ICO in September 2017 and days before the launch the e-mail address of the CEO was hacked and the the 9000 users of the Engima community were sent fraudulent e-mails.
The message which spoofed the companies website and looked legitimate, contained the details of a private crypto-wallet and asked the users to send money.
The hacker earner almost 1500 cryptocoins before being shut down, equivalent to $494,170.68.
In July 2017, Coindash lost $ 7 million with a similar hacking attempt and Veritaseum, $8,4 million in the same month.
As the projects being funded by ICO’s are not subject to audits and legislation, there is also a risk of the price of the tokens being to high, reducing the chances of the investor making a decent return on their investment.
The Future of ICO’s
Estonia, one of the most technologically advanced countries in the world is looking at launching cryptocoins called Estcoins and selling via an ICO to generate revenue.
The money raised would be to fund various technology projects throughout the country and in the future the cryptocoins would be used as a currency inside Estonia as well as globally, thus adding value to the investors.
Estonia plans to launch a white paper outlining the proposal in the near future.
Regulation of ICO’s is expected to happen very soon which will legalize the environment and reduce the risk of the scams and unmonitored investments which should result in ICO’s becoming even more popular and mainstream.
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