The pros and cons of ICOs for entrepreneurs by Betsy Vereckey

TL;DR - ICOs allow founders of blockchain-based startups to raise funding quickly and easily and also give them an insight on market demand. However, due the lack of regulations, the line between what founders can and cannot do in ICOs is unclear.

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Tags - initial coin offering, ICO, pros and cons of ICOs. cryptocurrencies, blockchain

Questions answered:

  • How significant is the role of ICOs in raising funding for blockchain-based startups today?
  • What are the advantages and disadvantages of ICOs?

Summary:

  • The cryptocurrencies industry exploded in 2017 despite a slow start, mostly because of the popularity of all things bitcoin with a market cap of over $117 billion.
  • It is estimated that blockchain-based startups have raised over $8 billion through ICO in 2017, far surpassing the $1 billion in traditional VC within the same industry.
  • Advantages of ICOs:
    • A relatively quick, uncomplicated way to raise funding with low barriers to entry (e.g. can take less than 100 lines of code to create a token on top of Ethereum).
    • Generate buyer competition for the token (if successful), giving founders an insight on market demand (what customers are willing to pay for their service).
    • Tokens can help startups attract early adopters and encourage app developers to build on top of a new platform.
  • Disadvantages of ICOs:
    • The lack of regulations; founders do not have much clarity about what they can and cannot do.

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