Ethereum (ETC) launched in 2014 as an ICO looking for 31,000 BTC. Obviously, ETC has become a booming success – earning those early investors millions – and, similarly, investing in an ICO or a new token is like being on the hunt for the next Ethereum. The problem is that this philosophy mostly flourishes abroad.
Outside the United States, ICOs are not so strange or murky and education on cryptocurrency is more replete. For many investors in Asia or Eastern Europe, buying into a coin is about finding one without a long lock-up time and setting it free on the open market. Too often in the United States, ill-informed media broadcasts warn viewers about the dangers and scams of ICOs, but rarely discuss those that are serious and legitimate operations. Currently, we are in a news cycle where ICOs are one-sidedly being lampooned and careful journalistic investigation is not being done.
Most importantly, it is rarely outlined that ICOs represent a shift in fundraising for start-up ventures. For years, small-time investors were barred from seed investment opportunities. Initial coin offerings and the spread of tokenization is a radical divergence even from recent tradition. Of course, there are “washers” and “spoofing” and downright Ponzi Schemes, but if you focus on those stories than you might miss the revolution taking place under your feet: financial mechanisms are changing.
Crowdfunding platforms are normal in our current ecosystem raising $34 billion in 2015, but ICOs are not that different and even come with more incentive. An ICO has the embedded value in the protocol and early adopters are incentivized to grow the project increasing the value of the coin. In addition, in an ICO you can immediately trade your tokens or investment, but in a crowd funding venture there is often not a platform to do this. Most ICOs have smart contracts written into the code and can be audited creating a level of transparency that is overlooked by recent media reports.
Moreover, a large majority of ICOs are related to blockchain-based technologies, which is something that most analysts applaud and agree might be the greatest invention of our time. So, blanket statements about ICOs and the investment class in general might keep retail customers from missing out on something huge. In fact, Mangrove Capital Partners explored this idea and found that a wide swath of visible ICOs they analyzed returned 13.2x on investment.
Essentially, the ICO is the balance of power tipping toward the entrepreneur and away from large banks and the venture capital industry, but, most importantly, away from the control of regulators. Regulators have long kept mom-and-pop investors out of risky investments effectively saving them and keeping them down at the same time. The SEC is trying to claim that they are doing the same now, but they really do not understand blockchain and don’t understand that in a decentralized economic system, they do not call the shots.