ICOs: light and shadow of virtual IPOs
- Von Larissa Melville
The total value of all cryptocurrencies currently stands at 185 billion US dollar (stand of 11/01/2017) – five times higher than at the beginning of the year. Latest trend in the scene are so-called ICOs (Initial Coin Offerings). In these virtual IPOs companies don’t issue shares, instead so-called tokens. But what are the risks and what do investors have to consider?
This should be noted by ICO investors
- Which company and people are behind the project?
- Is the business model coherent and unique?
- Can money be made with this model?
- Is the technical infrastructure adequately guaranteed and secure / Who is responsible for the
- technical implementation?
- Are the financial resources of the actors enough to finance the project?
- Which currency does the ICO accept for token exchange?
- What can I do with the new currency?
- Does the project has a social benefit?
- Which known participants already invest in the project or are there well-known advisors who support the company?
- For what period of time is the project created?
- Is there an official wallet (digital purse) for the new currency?
A quick overview:
- Cryptocurrencies are accepted as means of payment and are even promoted in the retail trade
- The Japanese stock exchange Bitflyer is the largest Bitcoin exchange in the world
- Since October, Japanese cryptocurrencies have to keep minimum conditions
- In planning: JCoin, a separate Japanese cryptocurrency (2020)
- Regulators banned ICOs in early September 2017 and closed existing trading platforms
- The reason for this is the concern that Bitcoin allows illegal trades and investors could bypass capital controls
- In future, licenses for virtual marketplaces will be awarded
- The currency Bitcoin is still allowed
- Like China, South Korea limited issuance of new currencies via ICOs in September 2017
- Previous cryptocurrencies continue to exist
- Russia, as well, wants to regulate cryptocurrencies for the moment
- However, digital currency trading should be fundamentally possible and based on existing legislation
- Crypto Valley: Here, start-ups can turn real money into virtual money for their projects
- Financial supervisors have announced that they will take a closer look at ICOs in order to expose fraudulent intentions.
- Virtual currencies are accepted as "private money" in Germany – they aren’t considered as legal means of payment
- Everyone may use them as a medium of exchange, for electronically transfer, store or trade, but not commercially
- Up to now, regulation only exists in New York: everyone who deals with cryptocurrencies needs a license. Not affected are those who only buy digital money.
- Further regulations are intended to prevent money laundering, e.g. by identifying everyone who transfers large sums of money