Innovation, self-regulation key to ICO development says expert

Physical representation of virtual currency, Bitcoin. Oct. 10, 2013 (photo: Antana / Flickr via Compfight)Physical representation of virtual currency, Bitcoin. Oct. 10, 2013 (photo: Antana / Flickr via Compfight)

Initial Coin Offerings are a very risky, but potentially very rewarding form of capital raising provided that it is allowed to develop properly, according to Edan Yago, CEO and founder of Epiphyte. And for this to happen, the Dutch government and authorities should let ICOs develop unhindered, without stymieing innovation by applying new regulations onto this young field. "They should stand to the side and allow ICOs to develop", Yago said to NL Times. 

The Dutch authority on financial markets AFM offered to review whether ICOs are following regulatory rules before they launch. Yago thinks that it's a nice offer, but maybe the AFM does not have the necessary resources to engage with every organization. He believes the way forward is for governments to enforce existing regulations and make necessary changes as the field develops, and let ICOs themselves work out the regulations needed for their specific field. "The ICO community needs to start working to develop traditions and culture and we're already seeing that happen", he said to NL Times.

An ICO is an unregulated means of crowd funding using cryptocurrency. It is regularly used to raise capital for startup companies. But as it is unregulated, it is also controversial. Early this month the AFM and Dutch central bank DNB warned Dutch investors against ICOs, saying that they are vulnerable to fraud, deception and manipulation. Earlier this week, a believed to be Dutch man disappeared with nearly 320 thousand euros in cryptocurrencies that he raised through an ICO.

Yago thinks that the AFM is doing the right thing by warning investors against ICOs, calling the term ICO a silly play on words for a field where serious amounts of money are at stake. The risks involved in investing into an ICO are very high, especially given the fact that so many of them are scams, he said. Investors need to proceed with "extreme caution". "It's hard even for seasoned investors, let alone new investors, to verify them", Yago said. Reliable information and analyses are only now becoming available. "You have to make an effort to find the infromation."

It helps that buying an ICO is not a simple task. "Barriers to entry are very high. It's hard to figure out what's available, how to buy Ethereum, and how to purchase an ICO. It's good that it's hard", Yago said, suggesting that it weeds out casual investors and businesses that aren't yet capable to think through participation in an ICO as the field develops. 

Yago is one of the speakers at ICO Event Amsterdam, taking place on November 29th. He will speak about the future of ICOs and how mainstream users will use these token based services, which don't accept fiat money - money created by governments like dollars and euros.