The Pros and Cons of Initial Coin Offerings - Coindoo
Pros and Cons of ICOs

The Pros and Cons of Initial Coin Offerings

Editorial Team Avatar
Sep 14, 2018
5 min reading time

With China and South Korea banning Initial Coin Offerings (ICOs), one has to wonder why such a move was made by countries enjoying all things crypto. As for the US, and other countries who have not stepped in to disallow these offerings, it’s odd why China and South Korea have not made similar moves.  So, we will look at the pros and cons of ICOs, and try to figure out why they are so controversial.

First, we will start with the PROs

1. There are key reasons why ICOs are so beneficial for the cryptocurrency ecosystem.  First off, they are truly beneficial for startups as they are an essential source of money needed to get the ball rolling that without, most organizations would fail.  Angel investors and venture capitalists are scarce, and the only way a startup would ever reach them would be through an ICO.

This low hanging fruit opportunity allows for startups to reach the investors that have the money it takes for them get off the ground where otherwise their path would be blocked. It allows anyone, no matter their geographical locations, political views, ethnicities, or religious beliefs to raise capital. This democratizes the space and allows anyone (theoretically) with the will and the way to create their own cryptocurrency.

2. Time is always against anyone in the startup mode, and if you don’t have enough momentum, you will die a quick death. ICOs offer speed because all it takes is a white paper to get things started. The legal paperwork it requires for setting up a corporation, or a holding account, or a term sheet is very expensive, and the process of having investors read all of that material before signing on is usually quite lengthy. With ICOs there are limits on these necessities, and the amount of time and money it takes to get things accomplished are much easier to deal with.

3. ICOs also build communities before they even have a product to invest in, and this is important because it brings with it incentives for investors to encourage the growth of the token.

Now we will get into the CONs:

1. There are a lot of scammers in the space that have made use of ICOs to scam many people out of money. Anything can look good on paper, and when all they need is an attractive white paper to get people interested in risking their money, it isn’t hard to see why scammers take advantage of these easy prey. Fancy names, multiple “advisory boards,” and professional looking websites can suck in the unwary investor and bleed them dry if they allow it.

2. Conceptualized products that have no value without speculation gives a lot of power to the whimsical opinions of those who may or may not have a vested interest in seeing the project succeed or fail. Conflict of interest is always something that must be considered before giving value to any speculation. 3. People with the most money in the space tend to manipulate it as they do other markets. These people, known as “whales,” can push the market with bots, GAS, and scripts that set things up to their advantage. They can afford to pay more in transaction fees to get ahead of you in line and buy up the tokens within the ICO.

4. Organizations offering ICOs that have no true leadership (like a regular corporation would have), and that doesn’t understand how to create a proper, sustainable company that will stand the test of time are in trouble. This is something that has happened many times involving new startups because their teams are decentralized, unfocused, and in need of smart decision makers that can drive the company into a successful existence.

5. The cold, hard reality is that 90% of these ICOs will fail, for whatever reason, and the number of failures vs. the number of successes makes it hard to legitimize ICOs for those who do their due diligence. However; most people invest in ICOs with blinders on. They don’t learn how to trade cryptocurrency the right way. Instead, they rush in and invest their capital without knowing all the pros and cons of the ICO, and hope to hit it big like playing the lottery.

As you can see, the benefits are almost always in the hands of those startups and the investors with the most money, while the detractors are reserved for the small investors spending their hard-earned money hoping to strike it rich.  Have people hit it rich investing in ICOs? Yes. Does that mean you will? One can speculate, but for the small investor who don’t use good sense, and practice due diligence, the chances of losing are always higher than the chances of winning.

=== Author Bio===

Chris Douthit @chris_douthit

Chris Douthit is a stock and cryptocurrency analyst who’s worked in both finance and technology for nearly 20 years. With his insight and technical analysis, he achieved over a 2000% return in the cryptocurrency space in 2017. Today his training and research center, is quickly becoming the go to website for investors looking to fast-track their success.   

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