Who Holds the Future of ICOs | Regulators v/s Innovators

Initial coin offering (ICO), a popular form of capital generation for new and upcoming projects has become the default path for new entrants. The year 2017 was all about bitcoin prices while ICOs hogged the limelight in 2018.

The introduction of Bitcoin made a significant mark in the financial world, as it pointed out the current system’s flaws and how to overcome them. The new wave of digital currency made the world take notice and changed its perspective on how money works. Similarly, ICOs should make us question the three well-developed sectors, venture capital, public finance, and entrepreneurship.

Although ICO as a concept is barely two years old, the raging debate over its future is a hot topic in the crypto world. The society is divided over the role of regulators and innovators and who holds the key. Let us dive deep and see how things have panned out for ICOs.

The Regulation Dilemma

The three established sectors that ICOs are challenging have seen many adaptations and changes in recent times. However, the main point of resistance comes from regulators. Currently, regulators look at ICOs as nothing more than a form of security offering, which might not be the complete picture. The concern is not quantitative as in how many ICOs are regulated or the limit over capital fund one generates. The main concern is qualitative as many crypto pundits believe that regulatory resistance would lead to the killing of an innovative concept which if implemented correctly can empower companies for a hassle-free digital future.

At the moment, U.S. Securities Exchange Commission (SEC), only recognizes Bitcoin and Ethereum as digital tokens rather than security. However, there are plenty more tokens that deserve the same recognition. Another major problem with SEC functioning is that they haven’t laid out any set of rules to make sure ICO tokens are not just security offering. SEC just gave a vague viewpoint where it said that any network with enough number of decentralized tokens wouldn’t be viewed as security.

In the absence of any such guidance, the various platforms of the crypto realm have started to decrease their central authority over their tokens to feature in the list. However, this path would lead to more problems than solutions. Any new project at its basic level requires some form of centralized authority to put out a complete flawless plan.

SEC and other authorities need to understand that these tokens are more of currency to the laymen than a bond. People can earn these tokens via transaction verification, mining network or sharing data. The tokens can act as a form of exchange for services in the digital array. So, it’s more of a medium of trade between the service provider and consumers.

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The Promise of Innovation

The innovation of the tokens would only be possible if the regulatory bodies and the developers are on the same page. It is understandable given how new the technology is, but confusing a utility based entity to security can prove to be a disastrous move for the blockchain technology. The label put by SEC cease the movement of tokens from the producers to the consumers.

And the fundamental problem remains, people will lose money no matter what level of compliance is followed by the developers. The confusion is not over the security and preferably on the use. SEC seems to be unaware of the underlying logic behind a decentralized digital currency, the freedom from unnecessary regulations from a centralized authority.

Regulations will be a significant factor for the growth but not at the cost of innovations What SEC needs to realize here, that consumer protection cannot be achieved by implementing the same set of rules which were devised for the technologies and institutions ages ago. Maybe the current ICOs are not dynamic enough to ensure total consumer protection, but given its only two years old, killing the technology through unnecessary regulations is not the way to a brighter future

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Final Thoughts

The current deadlock over the regulations for tokens might look disappointing but, hopefully, in 2019, at least US and SEC would look at the matter from the user’s perspective. The path won’t be any comfortable as regulators are put in their position to monitor the new technologies and innovations coming up. The regulators might end up on the winning side and take control over the ICOs functioning, but as the flag bearer of new technology, entrepreneurs must find a way around it, unless they want to be a puppet in the hands of old-age norms and people controlling it.

Note:

William Mougayar is the founder of Token Summit and author of “The Business Blockchain.” His in-depth analysis of the ICOs is more of a yearly review than a traditional viewpoint. In his article published on coinDesk platform, William tries to put his perspective in the open. This article is loosly based on Mr. William’s analysis.