Risks, Rewards, and Dangers of ICOs

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Bitcoin has created a revolution by introducing the very first decentralized digital currency in which individuals and businesses control their transactions instead of banks and credit cards. Now we have another revolution in the form of the initial parts supply (ICO).

What is an initial parts offer (ICO)?

An ICO is a relatively new fundraising tool that start-ups can use to raise capital via cryptocurrencies / tokens. Here, investors collect money either in Bitcoins, Ethereum or other types of cryptocurrencies. It's like another form of crowdfunding.

Benefits of ICOs

Like Bitcoin, the main advantage of ICOs is that startups do not have to deal with third-party authorities such as banks and venture capitalists. ICOs offer a number of other amenities, including:

  • Mobilize capital from around the world

  • Potentially high returns for investors

  • Quick and easy fundraising

  • Principle of limited supply and demand in which cryptocurrencies gain value in the future

  • Tokens have a liquidity premium

  • Low to zero transaction fees

ICOs started gaining popularity in 2017. A good example of May 2017 was the ICO for a new web browser called Brave. This generated more than $ 35 million in just under 30 seconds. In October of the same year, the total ICO Parts Sales carried out at the time were worth $ 2.3 billion, more than 10 times its performance in 2016.

Risks and dangers of ICOs

As with any new technology, particularly if millions of dollars are involved, regulatory authorities have come under criticism and scrutiny. ICOs have involved risks, scams and controversies that have placed them under the control of professional companies and civil servants.

Some common risks associated with ICOs include:

Lack of regulation

This is perhaps the biggest problem facing ICOs. Because they do not adhere to the laws and regulations of centralized authorities, ICOs are faced with much speculation, debate and criticism regarding their legality.

In the United States, the U.S. Securities and Exchange Commission (SEC) has not yet recognized ICO tokens and investments, which leaves uncertainty about what to do with their regulation. This is why it may be better to invest in start-up ICOs linked to law firms.

High Potential scams

Another thing with unregulated ICOs is that there is a risk of fraud or fraudulent attacks. Those who place bets on ICOs are generally unsophisticated investors.

Investors do not know if a project that has not yet been published will ever be published. ICOs don't even disclose any personal information either. So for all they know, this is all a big money laundering scandal. On the other hand, there have also been cases where this has happened with crowdfunding.

Higher Chances of failure

A startup that obtains its capital via ICOs is more likely to fail. In fact, a report by a small team from Boston College in Massachusetts found that 55.4% of token projects fail in less than 4 months.

Conclusion

Ultimately, ICOs are quick and effective crowdfunding opportunities, but with fairly significant risks in terms of security, regulation, and high chances of failure. It works for some startups, but the vast majority of them don't. Whether it is moral or not depends on how you view the consequences and the quality of your marketing skills.


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