Based on the mega-successful initial coin offerings (ICO) from companies including Iconomy, Singular DTV, First Blood and Decent, it is fairly evident that the cryptocurrency community supports the crowdsale of tokens from private Blockchain-based startups.
However, the entire mechanism of cryptocurrency presale has received criticisms from experts, who present convincing arguments against the legitimacy of ICOs.
Any Blockchain startup can engage in an ICO, even with several snippets of code or superficial descriptions of their service. The simplistic idea behind crowdfunding a non-existent software or system has become a trend in the cryptocurrency industry, with private companies raising millions of dollars to fund their next operations.
Crowdfunding vs ICO
One major difference exists between traditional crowdfunding methods and ICO, and that is market value. When a product is introduced on crowdfunding platforms like Indiegogo, investors and buyers are aware exactly what to expect when the product is complete.
For instance, when electric skateboard Boosted Board or smart watch Pebble initiated their crowdfunding campaigns, investors were able to immediately tell if the product was worth a certain amount of money by comparing the products to others in the market.
In contrast, it is virtually impossible to predict the outcome of an ICO, especially if users aren’t fully aware what they can expect. ICO itself is not based on any real-world market value, which thus makes it prone to substantial under or overvaluation of assets.
Usually, Blockchain startups themselves provide a value to the tokens being sold in an ICO. So, a startup sets the initial value that isn’t based on any value, product or software.
Thus, what happens when a token is overvalued? Investors lose substantial amount of money. The lack of guarantee for project completion and failure to address market value make it difficult to justify the legitimacy of ICOs.
In a leaked Skype chat, the Ethereum foundation even described its ICO as “donation,” which sums up most Blockchian startups mentality in engaging in ICOs.
To provide some standards in the ICO investment ecosystem, ICOrating has recently introduced an ICO assessment platform with which potential investors can look into the risks, merits, and overall advantages of an ICO.
There are also a few accounts that allow users to keep up to date with new ICO market developments: @ICOtimeline, @mallyx_icolist, @ICOs_Navigation, @scambust.
Experts Thoughts on ICO
Most Bitcoin experts are highly skeptical of ICOs, primarily because most projects engaging in ICOs have barely completed the technical aspect of their systems.
When asked about or engaged in a discussion of the ICO mechanism, many experts respond wittily, as it is difficult to describe the legitimacy of the ICO itself. Most projects going through an ICO in fact become successful, like Ethereum and Decent, but the idea of token pre-sale is unjustified.
@drwasho @ryanxcharles @zooko How am I to know how much to invest in YoursCoin ICO without knowing how many pages the whitepaper has?— Jameson Lopp (@lopp) October 20, 2016
When ICO = scam? Do we really need all these coins? Can "blockchain" exist without "bitcoin"? https://t.co/S2K8N3YotL— Pavel Kravchenko (@kravchenkopo) October 12, 2016
The ICO to end all ICOs is here: https://t.co/HpLeWpJ8Mu You do not want to miss out on this one! h/t @AAinslie @compleatang— Emin Gün Sirer (@el33th4xor) October 11, 2016
As seen in Cornell professor’s social media post, a developer went as far as creating satirical ICO product page, which essentially mocks the lack of code, market value, overvaluation, and incompleted white papers in most ICO projects.