Incentivized by the bitcoin success, ICO has become an all-comers affair. Bitcoin price has hit a record high of $10,000 and is expected to climb higher before the end of the week. The cryptocurrency has beaten former records it has set even though it has always been in its own class. Despite the excitement, this has generated among enthusiasts, there are concerns that the recent attention digital currencies have attracted has its downside.
The proliferation of ICO has added impetus to the buzz in the industry. This has sequentially made investors aware of its potential as an asset despite the fact that many of the developers behind ICO have practically little to offer investors in terms of value.
The idea behind ICO ought to be that developers have a good project but need to raise funds to execute such. However, what has mostly been the scenario is that a lot of these ‘startups’ have not done their homework well and should have no business launching ICO. Others joined the fray just because it has become a path to quick wealth.
Many companies that launched ICO after the Ethereum foray as a digital currency were instantaneous successes. Bancor, for instance, raised $153 million in a very short time of 3 hours. This was unprecedented. Neither would the greatest enthusiasts of Blockchain commercialization have believed that such figures were possible in such record time. This no doubt was the motivation of many startups that embraced ICO as a vehicle to fund their initiatives.
Despite many ICO successes, it has been proven that there are much more that have failed or fallen short of expectations. Analysts report that as many as ninety out of a hundred ICO actually fail. The reason primarily is that ICO is an uncharted territory just as a digital currency. Entrepreneurs and startups have been leveraging on the immense potentials of Blockchain to source needed funds for their projects. However, it is clear that there are many businesses who have launched ICO without legitimate products to back them up.
Compounding the problem is a huge ‘industry’ of scammers who have taken advantage of the lack of regulatory activities to join the fray, defrauding investors. There have been instances in which millions of dollars have been raised in crowdsale and the developers disappearing with the funds. This has in no small way brought the need for regulation to the fore as governments make frantic efforts to protect investors. This seems to have been a race to balance the need for the safety of investor fund and that of protecting the digital currency industry.
However, despite these efforts, the cryptocurrency space is still largely unregulated apparently due to its novel nature. The activities of government agencies can at best be described as frenetic as evinced by somewhat unclear signals and proclamations by agencies of some governments.
The Israeli regulators were reported debating the best approach to handling the ICO phenomena. It was hinted that plans were underway to ban ICO in the country. However, this turned out to be untrue due to the fortunate happenstance of the country being startup friendly. Reports coming from a source close to the country’s cryptocurrency community says that the country’s regulators are working on a model similar to that adopted by Switzerland which has technically ‘cleaned up’ its ICO space after scammers and less credible companies ‘invaded’ the industry on the heels of successful ICO such as Bancor.
The Chinese cryptocurrency community wasn’t as lucky. The Chinese government cracked down on ICO and exchanges in September in what many analysts agreed was a necessary preemptive measure to give regulators ample room to assess the pros and cons of digital currency on the economy. Prior to the ban, startups and digitally innovative companies had raised hundreds of millions of dollars from ICO in a rapidly growing Chinese digital currency industry. There is a consensus that the government intervention is temporary as the Chinese government has always been viewed as pro-innovation. The move to curb excesses was necessary to protect investors since observers noticed that as was seen in other places, more than 90 percent of the Chinese ICO were fraudulent.
The Blockchain community is aware that as long as this trend of having an all-comers ICO continues, it could be calamitous because conmen and scammers already have leveraged on the melee. It is obvious that the earlier governments take stance on regulating ICO, the better the digital currency industry evolves.
Japan, one of the countries that have taken a definite stance on the recognition of digital currencies as legal tender still has misgivings about ICO. CryptoCoinNews reported that Japanese regulators may not be favorably disposed to a blanket ban as in China. One Japanese regulator alluded that regulatory bodies were studying the trend to know what best approach to employ to ensure that the benefits were harnessed while eschewing the undesirable in the interest of the industry. The success of bitcoin, ethereum and the other coins whose developers had clear roadmap has been accentuated by lack of concreteness in the projects of many companies behind most recent ICO.
With speculations rife on regulatory measures, it is not yet clear what approach would likely be taken by regulatory bodies. The SEC, for instance, has been looked upon to make a statement expressing their stance. A lawyer informed about the commission’s activities hinted that they are getting ready to roll out a set of rules to govern ICO.
Views such as the one expressed by insiders among regulators point to the suspicion that ICO would cease to be all comers affair in the next few months as government agencies draft rules and regulations. Companies would have to readjust to create utility for their tokens to establish them as resources backed by value. This would ensure that those companies who have no business with ICO are effectively sidelined.
Selling tokens is one thing, the token being backed by the utility is another. That the internet and Blockchain operate in a virtual space should not imply that commercialization of innovations whose origin are the cyberspace would end in abstractness. This is the message governments and their regulatory agencies are passing across to the industry. The digital currency community eagerly anticipates the results that reify the abstractness most ICO have become.