ICOs a Great Opportunity but Be Careful, Says Former Ethereum CEO
It probably took some star power to get them interested, but the mainstream media is finally taking a good hard look at ICOs. Former Ethereum CEO Charles Hoskinson told ABC News that — although ICOs make investing and large-scale fundraising more accessible to everyone — that’s not always a great thing.
If there was any doubt the “crypto economy” echoes the 1990s “dot-com boom”, 2017 put it to rest. There were Hollywood parties and nine-figure raises for startups offering little more than a promising-sounding idea. Investors weren’t worried because they too walked away with huge gains.
In a snapshot of the current gold rush, ABC’s report referred to the $2.3 billion USD raised by ICOs to date, and one day in September 2017 where 48 new ICOs launched.
Charles Hoskinson: Everyone Can Participate Now – Which Is Good and Bad
Hoskinson played a large role in creating the current situation, having helped to develop Ethereum and serving as its CEO from December 2013 to May 2014.
Ethereum, in turn, has made token creation popular. A large percentage of ICOs (initial coin offerings) use smart contract-based assets created using Ethereum’s ERC20 token standard.
In the ABC report, Hoskinson said people who’d been excluded from existing capital markets — namely, everyday people and/or those outside the U.S. — now had the technology to join in and make money.
But he also acknowledged that those everyday people would have to accept more responsibility, looking beneath the marketing hype and promise to see if they projects they backed have solid foundations. Often they don’t.
“Through another lens, this new freedom can, and has, been exploited for fraud and scams,” Hoskinson said.
Here Come the Celebrity Token Sales
In 2017, celebrities including Paris Hilton, Floyd Mayweather, Jamie Foxx, DJ Khaled and Wu-Tang Clan’s Ghostface Killah have backed ICOs in some way.
It’s a fairly safe bet most of these stars are new converts to cryptocurrency, and the exact nature of their involvement beyond the name isn’t always clear. In Hilton’s case, it ended with a disendorsement.
Fortune cautioned that even celebrities themselves could potentially fall foul of securities laws. The exact legal status of tokens and token sales is far from clear, and presumably no-one wants to be the next Martha Stewart.
Former Ethereum CEO Says Do Your Homework
Hoskinson warned that it was very easy for one project to just copy another’s concept and code, and hyping it just long enough to make a quick getaway. Without the transparency requirements of regulated securities, ICOs are “a buyer beware situation”. Investors need to check whether the people behind a project have the incentive, technical skill and experience to deliver over the longer-term.
So lax are due diligence requirements covering ICOs that sometimes even those at the center of a project don’t know much about each other.
That’s not to say all ICOs are short-term pumps, or at all shady. The former Ethereum CEO said many are going to great lengths to ensure their tokens are not securities, have sought solid legal advice, and have a transparent management team.
Possibly a large majority of token-offering projects have a long-term vision in mind, along with real use-cases for the tokens themselves. These projects will execute their plans with the same aptitude and success variables as any other industry.
Hoskinson’s comments are essentially common sense — a quality that tends to disappear in a fast-heating investing environment. Even those fully aware of the risks can overestimate their ability to profit before the next bubble pops.
The question is, what stage of the bandwagon ride are we at now — 1995, 1998, or early 2000?
Where’s the crypto economy going over the next decade? Let’s hear your thoughts.
Images via Charles Hoskinson, IOHK, Pixabay