Blockchain startups managed to raise approximately $95 million through Initial Coin Offerings (ICOs) in 2016, $3.8 billion in 2017, and is already at around $6 billion in 2018 according CoinSchedule. This represents a new type of crowdfunding using cryptocurrency tokens. Some startups utilizing crypto-token crowdfunding have only provided a promise and a website and still managed to raise millions of dollars. Some, however, have failed to deliver on the promises made to investors.
The dependability, legality, and future prospects of this type of crowdfunding draw highly divergent views from experts. Here is some information you may find useful.
How Does Crypto-token Crowdfunding Work?
Basically, projects are started with an ICO through the issuance of crypto-tokens on the blockchain (often through Ethereum or Bitcoin). This provides investors the opportunity to obtain tokens in exchange for cryptocurrency.
ICOs have limitations. These include the amount of funds that can be raised or the time involved. The number and value of the tokens dispersed can either be static or determined based on the level of funds raised.
Legal Status of Crypto-Tokens
The question of whether crypto-tokens count as securities was initially not addressed much by the U.S. Securities and Exchange Commission (SEC) or corresponding organizations in other countries. In recent months, however, regulators around the world have taken a more active role in regulating ICOs. In particular, the US SEC has been extremely active in enforcing securities laws as they apply to ICOs and providing a lot of public guidance.
Crypto-token Projects: Are They Simply a Money Grab Scam?
Many people interpret ICOs and crypto-token crowdfunding projects as schemes to make a quick buck off of unsuspecting buyers. It is true that many of these projects have crashed and burned, failing to deliver their promises to investors. Certain startups have launched their ICOs without sufficient substantive backup for their claims other than a white paper lacking sufficient specificity and a website. However, the skepticism around these projects has not prevented them from occurring and also raising considerable funds through the crypto-token method.
Some experts believe that the enthusiasm surrounding crypto-token has much to do with the success of Ethereum and Bitcoin.
There are some who believe that ICO’s and crypto currency tokens will not have a significant place in the investment arena in upcoming years. Others believe if project creators are constrained to follow a prescribed set of standards, the landscape may be different and include an ever-increasing number of crypto-token projects.
