Initial coin offerings (ICOs) are the financial technology equivalent of initial public offerings (IPOs).
Both ICOs and IPOs serve as a means for a private company to raise funds for a particular project or venture. Although they’re similar in nature and function, there are key distinctions between the two offerings such as processes, legal aspects, and regulations.
IPOs allow investors to purchase company stocks that have value in the form of percentages or shares, whereas ICOs provide investors the opportunity to purchase coins or their own brand of digital currency, which can be used to access technology or any form of compensation.
With so many options available and so many things that are unknown about FinTech, here are the pros and cons of ICOs and whether they are worth the hype:
Pros
1. Readily accessible for investors and startup companies
Investors come from all walks of life, ranging from freelance workers to budding investors who are currently looking to find university jobs on Gumtree. Each of them has their own budget when it comes to finding the right investment in expanding their portfolio.
Because stocks and venture capitals are so few and far between, companies that use cryptocurrency as investment tokens provide more access to various investors from all economic levels. This is advantageous for startup companies who may not have the necessary funds yet to start their project but can potentially raise their value over time.
2. Accessible online
The primary advantage of an ICO is that all the transactions are done online. Everything can be easily investigated and traced online. If you want to do research and background checks, you can check out the following:
– Whitepaper that includes vital project details such as the problem to be solved and the solutions or actions to take
– Team background, including Github and Linkedin profiles of the team members
– Community pages in Telegram and Bitcointalk forums
– Milestones and plans for the coming months and years
3. High liquidity
High liquidity refers to an asset’s ability to be quickly bought or sold in the market without significantly affecting its value. Considering that crypto coins are safe and effective and don’t require a physical form to be exchanged, they’re relatively more liquid compared with other assets and can move faster. Additionally, investors can keep a closer watch on their investments by checking how the company is performing in the secondary market and its pricing in real time.
4. Less paperwork
Traditional assets such as IPOs, stocks, bonds, and other exchange forms rely on various regulatory filings that more or less can take up time and energy. Even when they undergo a series of confirmation, there is still a chance that these investments may not even get the necessary exposure they need to raise funds from the crowd.
What makes ICOs more attractive than IPOs and other traditional assets is that they rely on blockchain technology to keep a ledger on its various transactions. This allows the constant update of data in mere seconds.
5. High return of investment
Some of the most successful ICOs of all time started from a relatively low value and steadily increased their market value. What makes these ICOs truly successful is that they were able to provide something new and excited to investors that other ICOs simply couldn’t.
One example is NEO or Antshares, which is considered as China’s version of Ethereum. NEO succeeded because they include exciting features such as:
– Digitized assets
– Peer-to-peer networking
– Secure identification
– Decentralized forms of commerce
Additionally, they are also backed by big-name companies such as Microsoft and Alibaba, making them one of the most reliable and secure ICOs. They are also supported by the government of the People’s Republic of China, giving them an edge over ICOs. As of 2019, its current value is equivalent to 7.08 USD.
Cons
1. Volatile
Various blockchain technologies are prone to various changes, especially because various ICOs are also competing on the market. With so many factors that can affect their current value, investors can expect some rapid price changes in their asset, which can either be a very exciting challenge or a tumultuous experience.
2. A potential fraud
The big con of an ICO is that you, as the investor, has to be the one to diligently look at the profiles of the team members and see if they have the experience, technology, or blockchain knowledge to pull off their claims in the whitepaper. However, not every investor is well informed enough to distinguish one good ICO from a bad and fraudulent one.
Many ICOs don’t undergo the same regulatory process as IPOs and other traditional assets. While this makes them easier to procure and readily available, it also makes them subject to fraud and other malicious practices, which more or less can enable illegal companies to extract money from vulnerable investors.
3. May lack accountability
Many ICOs stem from start-up companies and other private institutions that do not have enough existing funds to start their potential projects. While investors can expect high returns of investment in the future, there’s no guarantee that the said companies will be able to deliver what they promise, which means that investors may not always get what they expect.
When deciding on which ICO to invest in, investors are advised to research all aspects of the company, which include their reputation, key employees, and the number of successful projects launched.
Conclusion
In early 2019, there have been movements within countries, governments, and financial institutions to find ways of regulating and legalizing ICOs. While there is no clear-cut answer on whether or not ICOs are worth the investment, there is no doubt that there had been a few successful ones in the past. If you’re interested in ICOs, practice proper precaution before you invest in a company just to be safe.
