Since bitcoins creation in 2009, we have seen thousands of other currencies. Just like when a company goes public (IPO), new cryptocurrencies also need funding. They can go ‘public’ through unregulated means in what is known as an ICO. In this post, I hope to inform you on what an ICO is and the risks you should be aware of.
One of the first ICO was Ripple. In early 2013 Ripple was created to develop a payment system and created around 100 billion tokens. Ripple’s founders then sold these tokens to fund the Ripple platform. Other successful crowdfunding projects, such as Ethereum, has now created a new blueprint on a new generation of crowdfunding projects.
Every month there are many ICO which explore new ways to connect applications to the blockchain platform. This new trend has endless possibilities; every individual and company could technically release a freely tradable token on the market. It could even go so far as replacing our current system of securities.
However, through a legal perspective, ICOs are mostly undefined. Since the current ICOs have been unregulated, there is not much government can do about it. Soon though, many governments may start viewing ICOs as financial assets, just like shares and bonds. The future is probably looking like we will see a regulated ICO.
In September 2017 the People’s Bank of China alright banned ICOs and cryptocurrencies, stating it as a disruptive force to the financial system. (Of course, this will not stop people from trading cryptocurrencies.) Shortly after, the largest cryptocurrency Bitcoin tumbled in price. This could be a sign that further regulations are coming in other parts of the world.
There have been instances in the past were ICOs have been scams. The provider created a good looking website and generate fake blocks to lure investors into the trap. Thus, there are risks to be aware of.