Initial offerings need to cool down, cofounder of digital coin network says
NEW YORK — Initial coin offerings (ICOs), a means of crowdfunding for blockchain-technology companies, have caught so much attention that even the cofounder of the ethereum network, where many of these digital coins are built, says it’s time for things to cool down in a big way.
“People say ICOs are great for ethereum because, look at the price, but it’s a ticking timebomb,” Charles Hoskinson, who helped develop ethereum, said in an interview. “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.”
Firms have raised $1.3 billion this year in digital coin sales, surpassing venture capital funding of blockchain companies and up more than sixfold from the total raised last year, according to Autonomous Research. Ether, the digital currency linked to the ethereum blockchain, surged from around $8 after its ICO at the start of the year to just under $400 last month. It’s since dropped by about 50%.
Hoskinson, who runs technology research firm IOHK, is part of a growing chorus of blockchain watchers voicing concern about the rapid surge in cryptocurrency prices and digital coin crowdsales that have collected millions of dollars in minutes. Regulation is the biggest risk to the sector, as it’s likely that the US Securities and Exchange Commission, which has remained on the sidelines, will step in to say that digital coins are securities, he said.
Start- ups raising money through ICOs usually skip the safeguards required in traditional securities sales, like making sure they’re dealing with accredited investors and verifying the source of funds. That could lead to lawsuits in the future, as digital coin buyers can sue the issuer claiming they didn’t know the risks of buying those assets, Hoskinson said.
Hoskinson joined the ethe-reum founding team in late 2013 and left in June 2014 as he advocated for a for-profit entity while others in the team led by Vitalik Buterin wanted to keep it as notfor-profit. — Bloomberg