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ICOs are great for innovators and investors, if done properly. New tools can help promote transparency.
Unregulated crowdfunding is one of the major innovations introduced by Blockchain technology. This system of fundraising conquers the barriers of class and location, enabling anyone at anytime to participate in ventures they believe in without going through the rigorous processes of previous systems.
For innovators and product creators, the ability to raise funds through token sales and Initial Coin Offerings (ICOs) simplifies their fundraising processes and opens their markets to greater opportunities in the global community. These benefits are responsible for the popularity that ICOs have gained since 2016. We have seen huge crowdfunding campaigns conducted using an ICO, and dozens of companies are raising anywhere from $10 mln to $300 mln in a matter of minutes and days. The total amount raised by ICO’s grew from $200 mln in 2016 to $2 bln in 2017.
The inability of governments and other financial authorities to control or regulate these ICOs is seen as one of the major reasons why the powers-that-be are reluctant to accept ICOs as a legitimate model of capitalization. Not only that, but some insincere, dishonest or unqualified players have been involved in shady ICOs that have left members of the community and regulators worrying about the genuineness of this novel innovation.
Other problems that are plaguing the general ICO system stem from the non-maturity of the technology, which is still in its initial developmental stages. This results in:
All of the above makes participants in conventional financial markets face a major expectations mismatch when they try to move to the Blockchain.
Solving the problem of transparency
CEO of Orderbook, Andrey Zamovsky, acknowledges the existing ICO transparency problems and recognizes them as a setback that may be slowing down the development of the industry as a whole. However, Zamovsky notes there are existing solutions to these problems which he expects to be embraced by participants within the industry.
He elaborates on some of the solutions:
From the look of things, no matter the efforts of governments and regulatory agencies to ban or restrict ICOs, just like Blockchain technology and cryptocurrencies, they are here to stay. As the fintech world moves more and more towards decentralization, the only option seems to be finding the appropriate ways to ensure a clean investment ecosystem with respect to ICOs.
For the time being, inventing rules and regulations through central organizations would betray the essence of decentralization and only cause more friction within the community. Therefore, it is incumbent on both the companies and investors to embrace systems that will promote credibility within the ecosystem.
On the side of the companies, opting for openness and transparency will enhance their reputation and make them more attractive, while for investors, adopting the fundamental investigative approaches before choosing a product will save them a lot of losses and heartbreak.
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