Initial coin offerings (ICOs), which introduce new cryptocurrencies to the world, raised about $4 billion in 2017.
There have been around 1300 ICOs to date. One of the Australian-based ICOs, Power Ledger, a blockchain-enabled solar energy trading platform, was launched in October 2017, and the coin offering or peer-to-peer lending raised $34 million.
Increasingly, ICOs are being sold to retail investors and there are plenty of ICOs with compelling stories.
Power Ledger, for example, uses blockchain technology to identify who owns excess solar energy and then links them to other consumers who buy solar, without market costs and commercial margins. Using Power Ledger you can save on your energy costs.
“If you are going to look at ICOs, remember it is high risk but potentially high return,” says cryptocurrency fan Alex Saunders.
He recommends you look at the qualifications of the team behind it and whether they are tackling real-world problems.
“A lot of businesses are trying to cash in on the word blockchain. Education is key and be patient. If you believe in these things, take a long-term view.”
But before you rush to subscribe, keep in mind that, unlike an initial public offering (IPO) of shares that has to pass through the ASX’s regulations and checks, an ICO is unregulated.
Also the funds for the company are raised by selling a digital token or “coin” in exchange for cryptocurrency or fiat currency, explains Nicholas Guest, partner of assurance and corporate advisory at HLB Mann Judd.
“Acquiring tokens via an ICO does not provide any equity interest or ownership in the underlying company or technology. It is the major difference to investing in shares or units via an IPO.”
Guest warns that ICOs are susceptible to fraudulent campaigns and are highly speculative and volatile. You have some legal rights and ownership with an IPO but not with an ICO.