2017-07-24 Mon

Initial coin offerings, a means of crowd funding for blockchain-technology companies, have gathered so much momentum that even the co-founder of the Ethereum network, where many of these digital coins are built, says it’s time for things to slow down.

People say ICOs are nice for ethereum because of the price but in reality, it is a ticking bomb. Charles Hoskinson, who helped develop ethereum, says there's an over-tokenization of things as companies are issuing tokens when the same tasks can be achieved with existing blockchains.

Many companies have raised $ 1. 3 billion through digital coin sales, surpassing venture capital funding of blockchain companies. 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.

Hoskinson, the main head of IOHK, a technology research firm, has raised his concern regarding the surge in crypto currency prices and digital coin crowd sales that have collected millions of dollars. Hoskinson adds 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.

Startups that raise money with the help of ICOs usually skip the safeguards required in traditional securities sales. 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 joined the Ethereum founding team in 2013 but decided to call it quits in 2014 as he wanted a profit entity but others were not of the same mindset as they wanted a non-profit entity.

Ripple Chief Executive Officer Brad Garlinghouse had a similar view regarding regulatory risks. Teams listing companies offshore and selling their coins to investors outside the U.S. are naïve to think there are no investor protection laws elsewhere. Ripple is a money-transfer company based on the blockchain technology, that's tied to the third-largest crypto currency by market value.

Besides, the growing concern about an ICO bubble and regulatory concerns, ether trading outages stemming from the jump in transactions, companies cashing in on the money raised in crowd sales, yesterday's $7 million CoinDash hack and even false rumors that Buterin had died, have all contributed to the tumble in the price of ether. Concern about bitcoin potentially splitting in two is also sending jitters throughout the crypto world.

Still, like Ripple's Garlinghouse, Hoskinson thinks once the currency ICO bubble deflates, crypto currencies will continue to be an avenue for companies to raise money.