The story of cryptocurrencies and their underlying technology, the blockchain, started not too long ago when a mysterious man (or group of people) under the name of Satoshi Nakamoto published the famous Bitcoin whitepaper.
Since then, Bitcoin has remained the most important cryptocurrency in the world. After Bitcoin, the second most valuable cryptocurrency is Ethereum. It was meant to be so much more than Bitcoin, not only a currency but also a platform that allowed anyone to build new currencies, as well as run and host thousands of dApps.
In order to build Ethereum, the development team required funding, and the traditional route for acquiring capital did not apply in this case. Therefore they appealed to all the holders of Bitcoin to purchase Ether through something called an ICO, short for Initial Coin Offering. Even though this was not the first ICO, it remains to this day one of the most, if not the most successful one.
2017 was the year that the ICO frenzy got to a whole new level, as investors from all over the world showed interest in this new-age way of investing. In this article, we will uncover some of the reasons why ICOs are so important for the cryptosphere by looking at their pros and cons.
1. Help promising projects get off the ground
ICOs allow anyone willing to invest in a crypto project receive crypto tokens which can either increase or decrease in value depending on the total amount of investment the ICO received. In short, ICOs are the ones that, if done right, can help a project start in life. In short, all the hype usually surrounding an ICO can actually get a lot of exposure for a crypto project. More exposure means more people potentially willing to back up your project.
2. You can raise staggering sums of money with only a whitepaper
There’s a lot of work involved in hosting a successful ICO but, at the end of the day, a well-thought-out whitepaper is enough to convince potential investors to invest in a cryptocurrency. A whitepaper should contain all the necessary information about a crypto project, starting with the real-world problem the project aims to solve, to all the little technicalities.
3. No useless paperwork involved
Another advantage of ICOs is the fact that they don’t require much paperwork. The fiat equivalent of an ICO is an IPO. IPOs, and most crowdfunding projects, usually require massive amounts of paperwork. As mentioned before, all you need in order to take part in an ICO is a whitepaper which contains all the details of the project. No paperwork involved also means good speed.b
4. ICOs are allowing developers to push to the envelope of innovation
Over the past two years, ICOs have really proven their worth, and more and more small businesses are starting to use them to acquire funding for their crypto projects. They provide developers with an extra incentive to innovate and create new exciting projects.
1. High risk of scams
If you’ve been in the cryptosphere for even a little while, you surely heard (or should have) all about the multitude of scams, attacks, hacks, etc. As it happens, ICOs usually attract many scammers due to their relatively straightforward nature. The scammers usually create fake whitepapers (usually copied) and bogus attractive websites to attract unwary investors. The consequence of all these scams is that the public tends to lose faith in investing in blockchain technology which is hurting everybody.
2. There are reputations at play
Not only are ICOs associated with scams, but they are usually a clear way of telling how serious a company is. For example, if something goes wrong in the ICO and it eventually fails, the founders’ public image might have to suffer in the long run. If the founders don’t plan their ICOs to the absolute detail, that could mean massive loses on all fronts.
3. They are not yet fully regulated
Cryptocurrencies, in general, have proven to be very difficult to regulate by various governments all over the world. This fact alone makes ICOs somewhat dangerous for potential investors, and they also prove risky for those hosting them.
4. You’re investing in an idea rather than a product
The reality is that when you are investing in a project through an ICO, you are basically investing in the IDEA behind that project, and not much more. The whitepaper should convince you about the details and the idea behind the project. There’s another thing to consider, and that’s the fact that more than half of these ICOs will fail. Last but not least, there’s always the possibility of a project getting ruined because of attacks or various hacks.
At the end of the day, ICOs are a good thing for the cryptosphere, but there are inherent risks any potential investor should take into account. When it comes to ICOs, it’s important to don’t rush things, thoroughly research all aspects, and only then commit.