Initial Coin Offerings, also known as ICOs have been all the rage since the first token offering in 2013. Despite the introduction of ICOs 5 years ago, fund raising using ICO didn’t gain traction until 2016. The year 2016 saw a boom in ICOs with 54 major ICOs raising a total of $103 million in that year. Subsequently, 92 major ICOs raised over $1.25 billion in 2017. The sudden interest in token sales was partially responsible for the cryptocurrency boom of 2017. Fund raising using ICO is a revolutionary way for startups to raise capital. Initial Coin Offerings decentralization allows startups to cut through regulatory red tape. Decentralization, however, also makes it easy for dishonest individuals and startups to create fraudulent ICOs.
A grinding halt Fund raising using ICOs had a good regulation-free run, but the fun run is coming to a halt. ICO marketing provided a disruptive way to raise funds, but where there is disruption, there are loopholes. These loopholes resulted in the loss of over a billion dollars in 2017 through fraudulent token sales. A study by Statis Group, an ICO advisory firm shows that 80% of the token sales in 2017 were scams. The scams took a mere fraction of the total capital raised from token sales in 2017. It was, however, enough to catch the attention of major regulatory bodies. Another reason for the regulation of ICOs is the argument that tokens are similar to securities. You see, the reason why token sales went unregulated was that they were packaged as utility tokens. Utility tokens are coins intended for use within a particular application. They don’t fall under the regulated securities trading space. However, when the tokens are used outside the designated application, they turn from utility tokens to securities. This has been the case with 92% of recent ICOs.
Why regulate token sales? Looking at the evolution of token sales and the turbulent nature of ICO marketing, it’s evident that regulations are necessary. Different countries have different attitudes towards token sales ranging from no interference to outright banning. China, for example, banned Initial Coin Offerings in the country citing that scammers could use them to defraud investors. Crossing over to the West, the U.S SEC started looking into ICOs to curb “pump-and-dump” schemes and market manipulation. The European Union doesn’t regulate token sales. They, however, have a tough stance against them and it’s only a matter of time before they too regulate them. On the other hand, several countries allow ICOs to run unregulated. Countries like Canada, Germany, Estonia, Israel, among others don't regulate token sales and show no signs of starting. So are regulators helping or hurting ICOs? Fund raising using ICO is a leaner and more cost-effective alternative to IPOs. However, the ICO framework contains loopholes that fraudsters can exploit to defraud investors. Regulating ICOs provides assurances to investors and adds legitimacy to the market. Unregulated ICOs have no legal obligation to deliver on their promises making them risky ventures. With regulation, ICOs have a legal commitment to deliver, giving investors some degree of transparency and assurance on getting their returns. Regulate or liberate? Regulation with all its benefits also comes with a few drawbacks. For starters, regulating ICOs kills their cost-effectiveness. The idea behind blockchain and ICO was to remove middlemen and reduce costs. ICO regulation makes the use of middlemen necessary and in turn, drives up the cost of holding an ICO. Startups have to pay legal fees and other payments to reduce the risks of getting caught up in red tape. ICO regulation also stifles innovation. Technology is quite dynamic and might prove to be an uphill task for regulators to keep up. The technology that is regulated today may be redundant in 5 years. For fear of breaking the rules, innovators would have to refrain from further innovation. We would, in turn, have
to make do with outdated technology. Strict regulations may also discourage startups from implementing new technology for fear of hefty fines or bans. The regulation of token sales has forced some companies to use airdrop as a way to bypass the rules. What is an airdrop? It’s a new way of crowdfunding that involves giving out free tokens. The recipients of the free coins then market the project on social media to help it gain more traction. Once the project gets popular, investors start coming in to invest. All things considered When it’s all said and done, regulations play a critical role in ensuring honesty whenever money exchanges hands. Although regulation might seem inconvenient from the startups’ point of view, it holds great benefits for the investors. On the question of whether regulation helps or hurts ICO, the answer depends on whichever side of the table you sit. For startups, it might seem like ICOs are getting hurt by regulations. The regulations might inconvenience the startups, but we can hardly say that they're hurting ICOs. Investors, on the other hand, get more benefits than drawbacks from the regulations. They get more transparency and relief from the burden of vetting ICOs to weed out scams.
Blockchain App Factory comprises of a team of some of the best ICO developers in India, who is well experienced in the field having completed a number of successful projects, and will provide reliable blockchain integration that will guarantee security and sustainability for your ICO in the market.
Many of companies over the world are faced with a problem of funding.
In this article, we will consider Initial Coin Offering (ICO) investment scheme.
But instead of shares, investors or people who just want to support the project buy ICO coins (also known as altcoins) or tokens via Initial Public Offering (IPO).
So, to create your own coin, you have to develop own blockchain from scratch.
So, it takes much less time for a development team to build a token based on existing blockchain solution than to create one on their own.
We hope that we've managed to cover all questions related to 'what is initial coin offering' and 'cryptocurrency coin vs token'.
Traditionally, it must include marketers, blockchain experts, designers, programmers, and alike (20-30 employees in total).
However, according to BlockChainHub statistics, the ICO profit usually overcompensates its budget.
The most optimal registration countries are Cyprus (the world-renowned offshore area) and other economically developed places like Switzerland, the USA, etc.
It’s also great for a whitepaper to feature relative images (e.g description of the financial distribution can be followed by infographics).
In case of positive results, your website is included on the dedicated list.
The proper ICO website features: a user cabinet (which also requires to include various payment methods, integrate your platform with the most popular e-wallets, and, if possible, connect the services like Escrow), newsfeed/blog, ad banner & video presentation, ICO & its stages description, small box with your team’s key members’ stories, whitepaper download link, a bunch of social networking pages links, and a FAQ.
ICOs have a lot of advantages for the investors investing in an offering.
Let’s discuss what favor will an ICO do to its investors.
In general, an ICO is launched with global markets as the main target.
Since there are no bounds, anyone from anywhere can buy the tokens.
No banks, organizations, and governing bodies can claim ownership on ICOs and thus it promotes individuality.
The investors have a lot of benefits than they see on the traditional banking system and the major attraction is that the token sale can be announced from any part of the world.
If you are looking forward to launching in ICO and to participating, you can know here, how they can raise funds and launch a successful ICO and when you start your ICO.
