Understanding ICOs, its Hazards and Opportunities

Understanding ICOs, its Hazards and Opportunities

Initial Coin Offerings or ICOs, as they are most known, are becoming an usual method of raising money through the release of a new cryptocurrency. New blockchain-based start up firms see ICOs as the best and easiest way of getting investment quickly and customized.

Despite of being handy for new start ups, ICOs deploy an original -an also dangerous- system. In the process of getting investment, the new start up launches a new cryptocurrency to the market that only works for and in their business, and it is thus evident that an asset has been shared or hold. As any other investment affair, once the final product or service is released, the investor would receive an uplift or an output of any kind or a possible pay-off that was previously agreed.

“Lots of good things have come out of the relative flexibility of ICOs and to raise capital efficiently from a community that understands the process,” Ajit Tripathi, director of fintech and digital banking at PwC, recently told Regulatory Intelligence.

“Overall, it’s a very interesting model in raising capital, but the relative lack of transparency is a concern,” he added. “Some tokens have no disclosure or underlying prospectus….the overall lack of transparency is the main issue.”

Just to have an overlook of light-speed ICOs are growing, the Securities and Exchange Commission is said to be taking a hard look at the increased use of such offerings, with the growth of so-called ICOs surging in recent months. The overall value of the coin market is estimated at over $90 billion, and the frenzied activity has fuelled a record-breaking rise in the price of bitcoin, which hit an all-time high of $10,911.86.

However, due to cryptocurrencies lack of regulation and inconsistency in some blockchain projects, ICOs can become a sort of a nest for criminal activity, making that the capital adventure can end up in a nightmare with the investor’s pockets empty.

Of course not all ICOs are hazardous, as they help removing middle-men and skipping big capital banks. Yet its high growth and the huge quantity of assets that ICOs move nowadays make them being the objective of criminals and fraud.

ICOs potential issues

The Finanser expert Chris Skinner shows his concerns of how ICOs and lack of transparency comes along with many perils.

In first place, what seems to be fuelling a lot of the recent flows into such ICOs tokens is their speculative potential, and the ability to take the tokens and exchange them for cash on many of the world’s crypto-currency exchanges. If the coin is listed on an exchange after its initial offering, then the likelihood that its value increases grows considerably, he said.

And he continues that “however, not all ICOs are created equally. Due to the complexity of the underlying projects, experts argue that investors need to have the technical expertise to be able to evaluate whether investing in an ICO makes sense. Moreover, the startup itself should provide sufficient information for investors to evaluate the investment. In some cases, the information is inadequate.”


The regulatory commission

Therefore, a major issue to stop a probably growing misuse in an ICOs would be the lack of regulation from government and international organisms, which among other practises allows a sort of wild investment venture.

“From a regulatory and legal perspective what remains contentious is whether the issuance of such coins are the equivalent to the creation of a new security, and should therefore come under the oversight and regulation of the SEC,” said Chris Skinner.

The SEC’s view on the issuance of such tokens is less than clear given the lack of public comment to date. But industry experts say they are aware that the issue is being actively explored.

Although what might be a guide to the SEC’s thinking is its recent decision to block the listing of the first U.S. exchange-traded fund tracking bitcoin. A more-than-three-year effort by investors Cameron and Tyler Winklevoss to convince the SEC to allow it to bring the Bitcoin ETF to market stalled when the agency’s staff ruled against them in March. The agency has since said it will review its prior decision.

And he added that in order to address the agency’s concerns, two things were needed.

“First, the exchange must have surveillance-sharing agreements with significant markets for trading the underlying commodity or derivatives on that commodity. And second, those markets must be regulated,” the commission said.

Whether the ICO sector, populated with numerous companies, small and large, who see their unfettered status as innovators a large part of their mission and appeal, can organize themselves to meet such requirements is very much in question at the moment.

Thought leadership series on new trends and blockchain, powered by Humaniq.

Launched in 2016, Humaniq aims to provide mobile finance to the 2 billion unbanked population through its mobile app for good, that uses biometric authentication to replace traditional methods of ID and security. Humaniq’s open source stack and API will be available for startups and other businesses to build services on its core technology, making it easy to adapt their service and plug it into Humaniq’s network to reach a huge, untapped audience.