Introduction to token sales (ICO) best practices

An initial coin offering (ICO) or a token sale is when a company sells a predefined number of digital tokens to the public in a limited period of time. The ICO market has grown very rapidly in recent months and has been a new avenue for blockchain based start-ups and projects to get the funding needed to launch their projects.

Having raised US$ 3.25 billion globally between January and October 2017, ICOs have surpassed early stage venture capital (VC) funding for internet companies. It is not surprising then that many expect ICOs to be the game changer for the FinTech industry in the coming year.

There is substantial criticism about the phenomenon as well. The People’s Bank of China was the first jurisdiction to ban ICOs in September 2017, calling them illegal and fraudulent. South Korea followed with a ban on raising funds through ICOs as well. This has also pushed other countries/regions, including Hong Kong, to be more stringent about ICOs. Many industry experts have also called for more regulations in ICOs to make it a more trusted and less risky activity.

However, ICOs are not limited by geographic boundaries which makes it difficult to regulate them. Also, there are no specific accounting standards for ICOs. These shortcomings make ICOs vulnerable to scams and frauds. There is a constant fear that a few bad apples could contaminate the whole ecosystem.

PwC argues that whilst there is a need for rational regulation of ICOs that does not stifle innovation but provides appropriate protection for token purchasers, we are likely to see a set of best practices emerge naturally.

Want to do an ICO? Five things you need to know

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