If 2017 was the year the world experienced the meteoric rise of the Initial Coin Offerings (ICOs), then 2018 could be the year that ICOs become the social norm for investing.
ICOs are in essence a way of crowdfunding using cryptocurrency as a source of capital for companies. ICOs also can offer investors pre-allocated coins called tokens in exchange for other coins on the digital market or traditional ‘fiat’ currencies i.e. Australian dollars, US dollars etc. In 2017, ICOs raised just under 40 times the amount of capital compared to the previous year.
Only now in recent months has there been a greater understanding and acceptance of the blockchain technology that forms the foundation of ICOs.
Crowdfunding vs ICO
Crowdfunding accommodates for individuals, groups or businesses to raise funds from the public bypassing a financial institution acting as a middle man. As the world’s economy starts to slow and with predictions of further financial strife in some countries, banks and lenders are becoming much more strict and regulated with their lending and application processes. Thus for small businesses and/or individuals the idea of crowdfunding offers a means of funding without the red tape that is associated with banks and lending brokers. Though with crowdfunding there is an element of regulations and platforms are heavily registered.
ICOs on the other hand enable individuals and businesses to invest in future cyptocurrency and tokens, thus investing in the idea of the company’s vision. ICOs can also be used to fund existing companies and projects. ICOs can be beneficial to in particular the small business looking to start up, avoiding the regulations and transaction fees that comes with lending money from institutions. With this though unfortunately comes risk; the risk of an unregulated environment can cause a chain reaction of unknowns and can put an individual at risk of being financially frauded. Thus due diligence is most certainly needed.
In recent times some countries such as China, has for the moment placed a ban on the sale of ICOs, due to the legitimacy concerns. Some other countries are in the process of drawing up legislation to regulate ICOs.
So what is right for you? There are pros and cons to both traditional crowdfunding and ICOs. The blockchain space is rapidly evolving and with that comes change in rules and regulations. 2018 could be the defining year for this and could change the way of how we invest in the future.