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 […]
