A few years ago, bitcoin seemed small and ridiculous. But in recent years, the cryptocurrency has managed to get stronger, to gain mass popularity, and I don’t feel like laughing at it.
When the emergence of new cryptocurrencies, such as litecoin and semi-daily dogecoin, became an event. The main exchange at that time was Mt.Gox, any pastry shop could secure the attention of the press for a long time by starting to accept digital currency, and the cost of bitcoin was determined by the amount of pizza that could be bought for it.
Now there are dozens of cryptocurrencies with a capitalization of hundreds of thousands of dollars, and new ones appear more often. In the world of young cryptocurrencies, there is one type of transaction, the essence of which is very important to understand, the so-called “initial coin offering” (ICO).
ICO is similar to the initial public offering on the stock exchange, which is reversed (or something like that). Alas, the situation is further complicated due to specific legal procedures and players using unethical methods. But, although the essence of this procedure is confusing to many, recently it is considered the preferred way to launch new cryptocurrencies.
ICO is a tool to raise funds based on the exchange of new cryptocurrency for liquid counterparts with a known value. You give away your bitcoins or ethers, and in return receive some amount of regular super duper coins (or the infamous CrunchCoin).
The Financial Times describes the ICO as “an unregulated issue of cryptocurrencies, during which investors can raise funds in Bitcoin or other cryptocurrencies”. This is a very precise definition, especially if the word “unregulated” is emphasized. But we will get to that later.
“Coins placed during ICO are essentially digital coupons, tokens, each of which corresponds to an indestructible record in a distributed account book, or blockchain, on which the first cryptocurrency is based, bitcoin. This means that they can be easily exchanged, although, unlike stocks, they do not grant ownership rights. […] Investors hope that successful projects will increase the value of such tokens. ”
The rising cost of cryptocurrency is crucial for understanding the essence of ICO. Investors do not buy them out of personal sympathy. These are investments made in the hope of a quick and high profit.
It is noteworthy that not all cryptocurrencies that conduct ICOs support their own blockchain system. According to the Smith + Crown research group, some ICOs offer a kind of “tokens,” built on the basis of cryptosystems of popular currencies, such as Bitcoin or ether.
So, sometimes ICO is a release of cryptocurrency based on cryptocurrency, which receives funding by exchanging for another cryptocurrency – all in order to see what will happen next. This may seem insane, but now the industry works that way.
And there are more and more such ICOs. The same article, The Economist, published in
April 2017, says, “About $ 250 million have already been invested in the ICO, of which $ 107 million was received this year alone.” This big money is not difficult to understand why even traditional business publications have begun to pay attention to the ICO. After all, they always follow the money.
As is always the case during a boom, many in the ICO world play in bad faith. Given that abuses are not uncommon, even in connection with Bitcoin and other recognized cryptocurrencies, which are generally resistant to frauds, it is not surprising that ICO attracts especially a lot of scammers.
Even a quick search on the topic brings heartbreaking headlines such as “To all ICO Matchpool participants, it looks like a fraud …” or “Digital currency fraud is a misuse of the Rothschild’s name.” There is no need to go far beyond the machinations in the ICO world. Add to this the incompetence of many market participants, and from the ICO will clearly blow the Wild West.
Alas, according to Smith + Crown, ICO organizers often bypass the usual rules for raising funds, thereby losing the opportunity to legally protect the interests of investors.
“Most ICOs today are sold as“ pre-sales tokens for software ”- something like early access to an online game for regular subscribers. To avoid the legal requirements that apply to the sale of securities of any kind, many ICOs today prefer to present themselves as “crowdfunding” or “collecting donations”. ”
Someone claims that lack of supervision is really good, as it allows the ICO market to grow faster. This is a reasonable (to some extent) and probably technically correct argument, but it does not negate the fact that inexperienced investors can easily fall prey to fraudsters. If the market wants to continue to grow and constantly attract larger capital, the situation will have to change.
In a recent article, CryptoHustle emphasizes that “the hype around the ICO is most likely related to the success of the first ether cryptocurrency investors who earned good money in the last period of cryptocurrency growth.” The growth of the air, of course, was stunning. If the ICO craze is associated with it, we can be in a long cycle.
Of course, this does not mean that everything is in order with the cryptocurrency market. At least since October of last year, forecasts have been heard that the ICO will eventually fail to justify the frantic growth rates and will turn out to be a bubble, as often happens in new technological niches. How long the good times will last is impossible to predict. But the correction is inevitable, and when it comes, we will see which cryptocurrencies have real value.
Should you invest in an ICO? Only if you love risk are you not in the least afraid of losing your capital and are willing to take risks for an idea that may turn out to be a failure.