The whole blockchain and cryptography scene is barely decade old. Yet, investors and startup businesses have been able to build a goldmine from it. That goldmine is known as initial coin offerings (ICO). It has become a revolutionary new way for startups and businesses to generate multi-million dollar investments.
They might have only come to light a few years ago, but ICOs have become the new rave in the crypto world. They are essentially a medium through which investors can exchange cryptocurrencies with the liquid value such as Bitcoin and Ripple for future cryptocurrencies. These future cryptocurrencies are often crowdfunded. They are also owned by startup companies. Future cryptocurrencies are sold as tokens which can later be exchanged for money by investors.
ICOs are the prime sources of investments for new businesses, especially those geared toward technological advancements. This relevance is because ICOs offer a channel for startups to steer clear of extra costs. These additional costs are usually brought on by regulatory compliance paid to regulatory commissions. With ICOs, startup companies don’t have to make use of third parties such as banks, stock exchanges, and venture capitalists.
ICOs were first introduced to the world in July 2013. It was held by Mastercoin. Up next was Ethereum in 2014, who raised over 3,700 BTC in the first 12 hours of its initial coin offerings, worth a stunning $2.3M at the time. Karmacoin also used an initial coin offering to fund its Karmashares project the next year.
By the end of 2016, 54 ICOs had raised over a hundred million dollars for their respective young businesses. The numbers surrounding ICOs increased astronomically by the end of 2017. The number of ICOs rose from 54 to 92. The total figure raised by the end of 2017 was an unfathomable $1.25 billion.
There is no doubt that ICOs hold a long list of advantages for startup firms and companies. They also hold a huge advantage to investors. ICO tokens are sold at ridiculously low prices and it doesn’t take a whole lot of financial grit to invest in them.
However, the concept of ICOs is riddled with a lot of controversies. Some people despise them due to the fact that they are unregulated and prone to frauds.
There have certainly been some huge hiccups along the way. A startling statistic has confirmed that almost half of the ICO startups launched in 2017 crashed by February 2018. In fact, earlier this year crypto newcomers Giza committed a scam through an ICO.
The crypto startup raised over 2,100 Ether coins via a fake ICO that had over a thousand participants and investors. The monetary value of that particular case was over two million dollars.
Last year, scammers behind Benebit tokens system walked away with between $2.7m – $4m. They had group photos that turned out to be doctored and collected money during an initial coin offering.
Of course, there have been attempts to make the system better. These attempts have not come without crackdowns on ICO startups. The Securities and Exchange Commission seized 15 million dollars made by PlexCoins during its ICO in 2017. The seizure was made because the company was advertising an unattainable 1,354% profit during its initial coin offering.
By June this year, Google will stop allowing advertisements for cryptocurrencies and contents related to that particular scene. Gibraltar has plans to regulate ICO tokens as commercial products. That way the country can monitor the process and avoid the occurrence of frauds. As of March 2018, both China and South Korea have bans passed on ICOs.
You might have probably guessed it. ICOs have been the core of a few substantial legal skirmishes over the year. This is not hard to imagine. The unregulated nature of ICOs coupled with the vast sums of money involved is a recipe for legal cases. A few of the legal cases involving ICOs that have taken place over the years include:
In 2017, the founders of Tezos were involved in a massive legal battle with the president of a Swiss foundation over the control of $400m raised in an ICO.
The Securities and Exchange Commission are locked in a legal battle with Arise bank over the supposed violation of regulations and commissions during its ICO for AriseCoin.
A law firm named Silver Miller has filed a class action suit against Giga Watt’s ICO for the sale of unregistered securities.