Hey there. One more day in the crypto community and I felt like talking about the regulations on ICOs given the recent news about Gibraltar and I will start by explaining about ICOs a bit.
ICO. Initial Coin Offering. It is a way to crowdfund the release of a new cryptocurrency. It raises funds to support the technical development of the new cryptocurrency by offering tokens. Tokens can be anything depending on the kind of power vested in them. Depending on the token, this could include the right to access and use a network or software application, the right to redeem the token for a unit of currency or a good, the right to receive a share of future earnings, the right to vote on decisions made by the organization, or more.
One of the earliest uses of ICOs for a cryptocurrency project was Mastercoin. Since then, they have been seen raising incredible amounts in short duration. This has led many to jump on to the bandwagon and release their own ICOs.
They drive global financial inclusion. It allows anyone from anywhere to invest in a project that they believe in. It has positive network effects for decentralized applications as it generates a built-in customer base who are motivated to support and spread the word. People help shape the whole ecosystem. They can sell their tokens for a much higher price once the service/product is well established. There is generally a lot of paperwork involved. Most projects don’t get executed because they get caught up in the red tape.
The thing is, over 90% of the startups fail and blockchain startups are no different. Adding to that, there are a lot of scammers out there who use opportunities like this to deceive people. It is also based on pure speculation. The catch though is that in an ICO, the tokens come at a very low price. If the project turns out to be a success, then the tokens, like shares can be sold at a good price. Ethereum tokens costed about 35-40 cents during its ICO and today they cost about 870$.
Now I believe that it has a great potential for development. Due to fraudulent behaviour, people have self-imposed restrictions to be more credible like storing contributions in an escrow wallet and establishing a legal document for the company. Despite all this, it is still very easy to be cheated and also a lot of projects stop halfway through due to lack of dedication. Given that the situation is such, I believe regulations are not a bad way to go but then the whole point of it being decentralized is lost. If any opinions, do share in the comments.