There is a lot of attention currently surrounding ICO's with the news about China and the governments recent banning. I've been getting a lot of questions regarding this topic and would like to address some of the reasons why people shouldn't worry about the news hurting bitcoin and exchanges long term, nor the untapped potential that ICO's truly offer.
First and foremost, please remember what is an ICO. For those who don't know or are new to the cryptocurrency space let me inform you. An ICO stands for Initial Coin Offering. ICO's are offered by a particular business/project, or services (mainly tech) that are trying to raise revenue for their business through a white paper (the blueprint of the business). It's almost like an IPO (Initial Public Offering) but has some more beneficial perks that businesses love (and some they hate). It's the newest way for businesses to raise revenue to grow, and many of them love it. In a recent article by Coindesk, some advantages talked about are how fast new projects can raise revenue. As much "as raising 10x the value in 1/10 the time." I'm telling you that ICO's are not going anywhere and are here to stay. Here is some reasons why.
Why would a business have an ICO and not an IPO? I am going to give the simplest explanation why ICO's are revolutionary from a business perspective. The first being that when a business conducts an ICO, they give up no equity in their business. This is huge as a business owner because from their perspective they still raise the revenue needed for their business to grow (just as if going public), but it's all with out giving up any equity or stake in their business. All of it being completely done extremely quick with many ICO's being finished in as little as one day with (often times) more money than they usually wanted to raise. Therefore the business still retains full ownership while still raising the capital necessary to expand. It's a beautiful thing in all actuality as a business owner needing money to manage and operate a business more efficiently and effectively.
But what does this mean for the investors? In theory, when a company goes public they do so to raise money for their business to expand. As a result of going public, the company must dilute its shares to sell to willing investors. If the business does well with its money raised and allocates the wealth for making the business better, the business grows in value. With it so does the shares therefore benefiting the initial risk taking investors with a higher value in stake than what they bought it for. With an ICO the risk is much higher, because of the fact that an investor has no "ownership" in the business. Instead though, the token or currency still pertains to the actual business in some way. This is actually a reason on some of the recent banning's of ICO's. A lot of "businesses/projects" are actually scams and conning people out of money for the development of a supposed product/service that they were never planning on keeping. This is where the issue comes in because they are so new, and hardly any regulation currently surrounds them. Currently the Securities and Exchange Commission (SEC) has began to weigh in on token sales and how they will all be treated on an individual basis and to be cautious both for the business and the investors participating in ICO's. The full report by the SEC can be read here. For these reasons, governments and authorities are imposing on them in attempts to regulate. It's a good thing but at the same time it also harms those good business projects that need to raise revenue for actual products/services that are going to help innovate the world in various aspects.
In having an ICO, the business gives a digital token, currency, or asset depending on the business/project structure that still particularly pertains to that business or project. As a trust to investors, after an ICO has been executed and if the capital raised was well spent in growing the business then that particular token, currency, or asset also increases in value along with the business/project. If the business does amazingly well afterward and increases in value, so does that digital asset because it still pertains to the business. As a result more people will hear about that business and might want to buy into the token/currency (kind of like stocks). As an investor myself though, you must be cautious and vigilant about what you decided to buy into. Almost all digital currencies or tokens in circulation were once an ICO that flourished or that failed. It is fact that more than half of these tokens in circulation will someday go to zero and be totally worthless due to the fact that many of them do not actually benefit or help people with a product/service intended for future use. Instead, they were devised to cheat and con people out of money with sketchy websites, tricky wording, and out of sight business/project developers or owners. Some advise if you're looking to invest into an ICO, look for something that is going to make an impact or change in the future and that is actively being developed, talked about, and well discussed in the community.
As an avid tech enthusiast I encourage everyone who is thinking of investing into an ICO, to ask yourself on why you want to invest into that particular business/project. What is it they're doing? What new innovations and changes are they bringing or changing? What value do they have? What does the whitepaper say? Is the whitepaper well thought out and planned to be executed well? What are they aiming to do with the funding they receive? Where are they planning on going with the business once the ball starts rolling? Who are the developers and people behind the company? Are they known? What is their history? These are the types of questions everyone should be asking himself or herself when deciding whether to invest or not into an ICO. Too many people are being scammed of their money due to being blinded that a company looks promising only to find out that the company is not responding nor doing anything they promised to do. These are scams, which is why businesses/projects that hold ICO's must be held accountable if they are not followed through.
I believe that ICO’s actually do a lot more good than actual harm to people because they are the helping to create and pave the way to amazingly new innovating technology that will impact and change the world drastically. At the same time though, because they are so new and not yet regulated there are a lot of people taking advantage. Not to necessarily raise capital but to steal money behind a fake product. Do not be suckered into these types of ICO’s. They are amazing, yes, but they are also risky and everyone should exercise extreme caution when trying to decide buying into a particular one. I myself have bought into a handful that I believe will be amazing in the future. ICO’s are completely new and increasingly becoming popular as more and more businesses start implementing them. Many big time investors are starting to conduct ICO’s such as Mark Cuban and Floyd Mayweather in conjunction with various projects. Whether or not the products they are trying to market will be successful is a different story. In the mean time though, I can assure you that once ICO’s are properly regulated and accountable, many more people will start buying and many more businesses will use them to raise capital. Both the cryptocurrency space and ICO value will continue to expand due to the fact that they are digital and are currently traded against other with one of the top "standards" that is bitcoin, ethereum, or some type of ERC token. ICO’s are here to stay as a revolutionary tool to aid in business growth and consumer adoption.