Dog days for Initial Coin offerings?
Initial Coin Offerings (ICOs) rose to prominence in a remarkable fashion in 2017. They exploded in popularity with such vigour that they fully eclipsed traditional venture capital fundraising processes, and in doing so engendered a set of circumstances at odds with the ethos underpinning their existence.
Decentralised and democratised mechanisms such as ICOs spawned from libertarian ideals and a cypherpunk attitude, which reject the notion of governmental interference in private life and envisage a distinct version of Utopia. If one condenses these ideologies greatly, they can be encapsulated by a single question: why can’t I? If a Central Bank can create their own means of exchange out of thin air, if some companies are afforded the freedom to receive capital in order to realise their vision, and if certain circles get access to investment opportunities, why can’t I? The ICO phenomenon was conceived out of such philosophies, yet their reliance on these foundational beliefs may bring about their undoing, at least in an ideological sense.
One only has to survey the current landscape for ICOs in order to see a divergence from their origins. Rather than the vision of companies with bags of potential being able to realise a well-structured ambition, we are witnessing poorly-conceived ideas running away with bags of money. Does hearing of urinary tract infections ring a bell? It should, because very recently a company named after a drug used to treat these UTIs scammed participants in their ICO. Investors believed in the grand vision of putting fruit on the blockchain. Instead of the average layperson being granted access to a wonderfully novel investment mechanism, we now see inaccessible minimum contributions, ‘gas wars’ and ICO projects selling out in seconds.
What are regulators worldwide to do in the face of fraudulent practices other than impose exacting regulations with the potential to stifle the growth of the area? The ICO phenomenon may be ruinously restricted before it ever gets a chance to reach full maturity. Already the warning bells are ringing: the SEC has begun to file charges against teams it deems to have violated regulations pertaining to the offer of securities to the public. ICOs have even become the subject of US Senate hearings. The SFC of Hong Kong has similarly begun a crackdown on cryptocurrency exchanges in contravention of securities laws. Developments such as these may be fuelling the recent skepticism we have seen in this area: fewer projects are reaching their token sale targets than before.
Further afield in the blockchain ecosystem, similar rumblings can be heard. Notwithstanding how bearish the markets have been in recent weeks, the cryptocurrency market capitalisation as a whole has grown exponentially. Those with enough faith in blockchain technology to invest shrewdly have been rewarded greatly. The wealth generated by this new asset class has spawned an entire subculture dedicated to Lamborghinis and delightful in-jokes referencing, amongst others ‘going to the moon’ and a personal favourite - ‘hold(ing) on for dear life’. Yet proverbial teachings assure that only two things are certain in life, death and taxes. How this community, so disassociated from societal norms will react when the taxman comes calling will be fascinating to watch.
So as we stand at the dawn of the Chinese New year, the stars seem to align in an almost comical fashion. China, of course, with its vast cryptocurrency mining farms representing an epicenter of power in a supposedly decentralised realm, is celebrating the year of the Earth dog. The element of Earth brings harmony and stability. Maybe we will see harmony and stability across the ICO domain this year. In an area characterised by such volatility, it would definitely be welcome. Worldwide, as people clamor for some guidance in the area, certain organisations are taking steps in the right direction. The Blockchain Association of Ireland are impressive in this regard. They have collaborated with legal experts Arthur Cox to offer an educational talk on the 20th February on topics including personal and commercial tax liability, ICO regulation and smart contracts. In an area clouded by uncertainty, this refreshing approach will hopefully be replicated worldwide.