While ICOs being regulated has been all over the news and many feel it’s a negative aspect of cryptocurrencies, the simple fact is that it was inevitable. And it’s actually a great sign for the future of them, despite the “doom and gloom” narrative that keeps getting pushed out regarding it. To better understand, it’s important to realize what the regulation actually means: that they are, for all intents and purposes, being seen as legitimate by the government.
Regulations Means Legitimacy
Cryptocurrencies are about bringing the power of money back to the people – not necessarily things like running securities. There is a big difference here because as we have seen with ICOs, the vast majority of people investing in them have absolutely no idea what they’re actually doing. Most don’t even read things like white papers or anything else – they simply take a quick look at what is being promised, then throw money at it without any real due diligence. This has resulted in massive amounts of losses and an ever-growing list of scams. After all, when people make it that easy to take their money, someone is going to come along to take it.
It’s safe to say that the same thing would be happening with normal companies and investments as well, as it can already be seen (though not on the same level as securities). It’s the regulation that helps keep this from being a widespread issue. At the end of the day, greed is rampant and vast majorities of people will throw money at anything that they think may have a chance to strike riches.
The reason why it’s important to note the comparison here is because it essentially means that the government is looking at ICOs as legitimate forms of raising funds. And regulation helps protect the people from nefarious parties.
What Would Happen if ICOs Weren’t Viewed as Legitimate?
If the government wanted to shut down ICOs altogether, they wouldn’t be treating them as securities. This is another important distinction because they would otherwise just loop all of them together and treat them as financial crimes. Instead, they are offering up the ability to use cryptos to raise funds as long as it is done legally – not infringing on existing financial laws that are meant to protect. As a great example of this, it has already been declared that currencies such as Bitcoin, Litecoin, and Ethereum are perfectly legal by government standards and are not classified as securities. That said, while Ethereum itself is not a security, the majority of ICOs being hosted on its blockchain are, and there have been many ICO creators subpoenaed to show up in court as a result of trying to raise funds.
The Safe Road: Due Diligence
With the government cracking down more and more on illegal ICOs, it’s more important than ever to do due diligence before getting involved with any. One of the biggest questions now is to make sure it’s even legal to be running, which brings another risk factor: not only are the parties behind them a risk (scams or lack of business sense), but the government as well if it’s not legal. Research is key, and the government cracking down will inevitably lead to a safer environment in the future.