What is right for you? The pros and cons to both traditional crowdfunding and ICOs.
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, there has been a greater understanding and acceptance of the blockchain technology that forms the foundation of ICOs. So what kind of benefit can using an ICO bring when compared to a regular crowdfunding scheme?
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 begins 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 which are heavily registered.
ICOs on the other hand, enable individuals and businesses to invest in future cryptocurrency and tokens; therefore also investing in the idea of the company’s vision. ICOs can also be used to fund existing companies and projects. ICOs can be beneficial in particular to small businesses looking to start up, avoiding many of the regulations and transaction fees that generally come with lending money from institutions. However, this does unfortunately come with risk. The risk of an unregulated environment can cause a chain reaction of unknowns, and can put an individual at risk of financial fraud. This means that due diligence is most certainly needed.
In recent times, some countries such as China have placed a ban on the sale of ICOs, due to concerns with business and transaction legitimacy. 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 changes in rules and regulations. 2018 could be the defining year for this, and could change the way we invest in the future.
