Initial Coin Offerings are being lauded as a way to fund open source software while fostering innovation. According to one source, more than 60 startups, open source projects, and other online communities have used ICOs to raise over $250 million.It’s not only users of the networks. Venture capitalist interest has piqued due to the liquidity of cryptocurrencies. That, and the profits.
To understand what may be the blueprints for a digital stockmarket, we need to examine the fine points of what some are calling the crowdfunding model 3.0.
Anyone with general knowledge of the tech industry and start-up business development can tell you the funding stages are make or break. Capital isn’t the sole return. Investments come with equity stakeholders eager to turn profits on investment in as little time as possible.
ICOs allow start-ups to maintain integrity in the development process. By allowing investment outside of conventional trading systems, some supporters view this move to be pro-developer. Furthermore, equity is given to everyone in the network in smaller denominated units. Thereby, these share-less holders are motivated to increase the value of the network.
The Not So Good
Some ICOs, such as Blockchain Capital, aren’t entirely decentralized. Blockchain Capital partners will still be the ones to determine how the initial fund investment should be spent. Additionally, heavy U.S. regulations limit token sales to accredited investors.
The DAO $50 million hack serves as a sobering reminder of vulnerabilities for all potential digital venture capital firms. While ICOs could reform flawed markets, and provide a solution for countries outside of the U.S. without established financial infrastructures, we should tread lightly. After all, we are establishing the first digital stockmarket. It is uncharted territory.