ICO’s Fundraiser or Fraud?

Balaji Srinivasan, CEO of Earn.com said, “It used to be that you had to come to Silicon Valley, walk up Sand Hill Road, network with individuals. That’s now been completely changed and turned on its head by the whole ICO thing.”

With cryptocurrency wallet development services, turning heads across the globe, startups have begun raising money from Venture capitalists or small-time investors on the digital currency platform.

ICO’s have become popular in different countries (especially Silicon Valley) as the ICO market crosses $34 billion marks.

What is an ICO?

ICO stands for Initial Coin Offering.

It involves selling a new digital currency at a discount or a “token” as part of a way for a company to raise money. If that cryptocurrency succeeds and appreciates in value the investor makes a profit.

The startup will offer its own cryptocurrency in return of established cryptos like Bitcoin and Ethereum.

How does ICO’s work?

ICO works like an IPO but investors do not earn ownership rights. Also, it is different from crowdfunding because investments made are not donations.

Investors provide money with the thought that the cryptocurrency involved will grow and their money will bring good returns.

In simple words, ICO ‘s are the crypto-currency version of crowd sales.
Investors bet on the possibility of the crypto being offered to gain popularity and grow in the future.

Are ICO’s successful?

ICO’s have been successful in the past which has invited investors to come on board.
One of the most successful ICO fundraising rounds was for Ethereum.

In 2014, the Ethereum project was announced and its ICO raised $18 million in Bitcoins or $0.40 per Ether. The project went live in 2015 and in 2016 had an ether value that went up as high as $14 with a market capitalization of over $1 billion.
ICO’s are poised to be the disruptive innovative tool in this digital era. But there are reasons for caution and this unregulated platform has faced its share of problems.

Scams related to ICO?

Since any central agencies do not back these fund-raising platforms, money lost might never be recovered.

Cryptocurrencies are fighting their own struggle against the possibilities of misuse for bad intents and purposes by certain sections of the society.

ICO scams have been reported in the past with the likes of Confido, which after successful fundraising of $375,000 disappeared from the markets.
Similarly, Match pool ICO and Qtum ICO have been classified as scams.
The startups which lack blockchain technology as the major component at their back-end have often faced flak and criticism.

Where do the laws stand?

Different governments have responded differently.
While China has banned ICO based fundraising, citing it as too disruptive and volatile for the economy, USA has asked private investors to file taxes and largely remained away from regulating the process.

The absence of a central observer raises doubts over the credibility of the process.

Future of ICO?

ICO fundraisers are based on cryptocurrencies. Therefore, when the bubble for cryptocurrency bursts, ICO’s will fall as well.

Also, being unregulated, these platforms do not carry much reliability.

However, for now, ICO’s have affected Silicon Valley like never before and has amassed a staggering number of proponents for itself.

Investing in ICO’s is not a bad idea, but one must limit the appetite to minimal short-term returns and courage to face the volatility it involves.

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ICO’s Fundraiser or Fraud? was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.