Initial coin offerings (ICOs), which have become an emergent phenomenon of blockchain technology and digital communities, have garnered increased attention that ethereum’s co-founder has come out and said that there is an ‘over-tokenization of things.’
In a report from Bloomberg, Charles Hoskinson, ethereum’s co-founder, said:
“People say ICOs are great for ethereum because, look at the price, but it’s a ticking time-bomb. There’s an over-tokenization of things as companies are issuing tokens when the same tasks can be achieved with existing blockchains. People are blinded by fast and easy money.”
ICOs, which are an unregulated means of crowdfunding by raising money in digital currencies such as bitcoin and ethereum, started to gain prominence in 2016. It is through this model that businesses and organizations have been able to get the necessary funding to get their projects off the ground.
In 2014, $26 million was raised in ICOs; however, this figure dropped to $14 million in 2015. It was only in 2016 that the world of ICOs took off, partly due to the crowdfund from The DAO, which raised more than $150 million after issuing over one billion tokens. As the largest ICO of its time, it was a $59 million error that eventually brought The DAO’s downfall. As a consequence, a hard fork was performed to retrieve the stolen funds.
Fast-forward to 2017 and the amount of money being raised through ICOs is continuing to reach new heights as potential investors place their confidence and money into an ever-expanding market.
According to research conducted by financial research firm Autonomous NEXT, in the first six months of 2017 nearly $1.3 billion was raised for over 50 ICO projects, outpacing venture capital investment in blockchain and bitcoin companies. Additionally, the research states that in the last 30 days a further $600 million has been raised.
Of course, with massive returns for so many ICOs – 80,000% for Stratis, 74,000% for Ethereum and 68,000% for IOTA – it’s not surprising to find that there are plenty more ICOs due to launch throughout the rest of 2017.
And yet, with such an abundant number of ICOs circulating some think that they are contributing to a bubble in digital currency prices.
Taking to Twitter, USAF BitNovosti.com, said:
“This bubble is a much more about ICOs than cryptocurrencies. And ICOs definitely can (and many will, no doubt) go broke.”
Admittedly, it’s not just price bubbles that can affect the existence of ICOs, but hacks too.
On the 17th July, $7 million was stolen by a hacker during the CoinDash ICO. The hacker was able to achieve this by changing the contract address of the ICO project. Potential investors who were unaware of the situation and continued to put funds into the fake CoinDash account have since bumped the amount to $10 million with 43,500 ether having been sent to the fake address.
Furthermore, smart coding company Parity reported on the 19th July that it had been subject to a security breach. According to data confirmed from Etherscan, over 150,000 ether was stolen, worth $35 million. Listing the situation as critical on the organization’s blog, users were urged to move ‘assets contained in the multi-sig wallet to a secure address.’
According to Gavin Wood, Parity founder and CEO, there were three accounts that were compromised.
“There is an effort by the foundation underway to secure funds in other wallets to prevent any further compromises; they will make an announcement in their own time.”
After the security breach, ethereum’s price dropped 10 percent on the 20th July to $211.
However, while these are major issues that the community needs to face, another one is the issue of regulation that remains the biggest challenge for the sector.
In the U.S., there is an alphabet soup of regulators who have made the creation of digital currency companies and the issuance of tokens difficult. These range from the SEC, the OCC, the CTFC, FinCEN and the IRS. It is because of this that Hoskinson believes that the SEC will eventually step in and label digital coins as securities.
Despite this, though, he believes that once the hype around ICOs deflates, the use of digital currencies to raise funds will continue to be utilized by companies as they move away from traditional venture capitalism.
He adds:
“Regardless of regulation ICOs are here to stay. After it collapses they’re going to pick up the pieces and say how do we do things differently.”