Startup incubators and accelerators have long been used by traditional startups in order to help them prepare for an initial public offering (IPO). Cryptocurrencies have already begun to build their own approximation to other financial tools so it’s not surprising that the concept of cryptocurrency accelerators has become a topic of conversation.
So what are these so-called accelerators and why are they important for the rapidly growing cryptocurrency ecosystem?
Despite being an excellent fundraising tool ICOs have raised a number of significant problems
Initial coin offerings, or ICOs have proven that while cryptocurrency has a great deal of potential the lack of regulations and procedures has allowed the darker side to flourish. ICOs raised over $5.6 billion in 2017 and look set to raise even more over the course of 2018. The main problem is that many of them have turned out to be questionable and there have been a number of high profile cases where ICOs either completely failed or their owners simply ran away with the cash, as happened with Prodeum. There have also been a number of high profile hacks and breaches that have severely undermined the overall credibility of the fundraising method.
These kind of high-profile failures have led to to a backlash against ICOs and are largely responsible for the heavy-handed regulatory approach taken by China, India and South Korea against cryptocurrencies. With China going so far as to classify ICOs as an illicit fundraising tool.
Part of the problem has been that many ICOs are poorly designed or strongly resemble a pyramid scheme. The flood of new investors desperate to cash in on the cryptocurrency gold failed to do their due diligence and many less than great schemes received an inordinate amount of money. ICOs are also particularly vulnerable to so-called Pump and Dump schemes. Whereby a group of individuals attempt to generate a lot of hype and interest in a particular coin, pushing the price up beyond reason, before selling everything they hold in an attempt to make a quick profit.
These problems can all be relayed back to a single problem. There is no internationally agreed framework for the regulation of ICOs. Some countries, like South Korea and China, have opting for a heavy-handed approach. This has broadly proven ineffective because their investors have simply moved to other countries. Others, like Switzerland, have taken a light-touch approach but in absence of an agreed set of international norms any proposed legislation has very little bite.
There have been a few approaches towards industry regulation
In absence of a coherent government response the industry has begun to take action to try to reign in the worst tendencies of ICOs. The first and most obvious example is the cryptocurrency platform NEO. The Chinese based cryptocurrency shares many features with the more well known Ethereum and is designed to the lay foundations for the “smart economy” of the future.
Currently the overwhelming majority of ICOs are built using Ethereum’s ERC20 token. The problem with this is that these tokens allow almost anybody to launch an ICO at next to no cost. This led an explosion of new ICOs, many of which low quality or simply outright frauds, such as the notorious “Useless Ethereum token”, that despite openly stating that it was a scam still raised over $265 thousand dollars.
NEO’s platform, NEP-5 takes a different approach. In order to create a token the company must spend upwards of $25,000 in GAS in order to cover the fees. While this is an amount that any serious project should be able to raise it ensures that anybody fundraising with a NEO token has already invested some capital in doing so, hopefully deterring any would-be scammers looking for an easy profit.
Unfortunately NEO ICOs are not immune from problems. The most recent example was Apex, a cryptocurrency designed to give more control over their data. During their crowsale Apex was hacked when a false wallet address was posted to their website. Despite NEO’s attempts to improve the quality of ICOs simply raising the barrier to entry hasn’t proven to be enough. This is where ICO incubators come into play.
ICO incubators give projects the funds and knowledge they need to succeed
An ICO incubator acts in the same way as an ordinary startup incubator. A team of experts find promising projects and in exchange for an equity stake in the venture agree to give the project the knowledge and financing it needs in order to bring its idea to the general mark. They have proven very effective in the old world and their transfer to the cryptocurrency world could prove important in 2018.
One of the most prominent examples of a blockchain focused accelerator-incubator is Global Blockchain Technologies Corp. (TSXV:BLOC.V, OTC:BLKCF). This company was founded by some of the top minds in cryptocurrency, including their chairman, Steve Nerayoff, who worked closely on Ethereum and Lisk. The company takes promising ideas and gives them the expertise and funding that they need in order to launch a successful ICO.
In many ways the knowledge on offer is more important than the potential funding. In March 2018 researchers found that over 32 thousand smart contracts had been improperly programmed, leaving users vulnerable to theft. This is because not all teams get their products properly vetted before rolling them out and not everybody really has the experience necessary to properly code a smart contract. ICO incubators would be able to provide teams with the expertise they need in order to ensure that simple but potentially devastating mistakes like this don’t happen.
By picking promising ideas, even from entrepreneurs with no background in cryptocurrency, Global Blockchain and the companies that follow in its footsteps will be able to greatly raise the credibility of ICOs and help to safeguard an increasingly important source of fundraising for many startups. ICO incubators and accelerators have an advantage over the approach taken by NEO because rather than simply imposing a monetary barrier they are actively vetting potential projects and nurturing them to the point where they are capable of succeeding.
ICO Incubators will act as a stamp of quality
As ICOs become increasingly common it is going to be difficult for investors to tell the good from the bad. The advantage of ICO incubators is that they show any potential investors that the team behind the project has had access to experienced developers and sufficient funds in order to build a working product before going to the market.
This will become very significant for the cryptocurrency market over the coming year. The crash may have helped to clear the market but ICOs are not going away. By providing investors with an instantly recognizable stamp of approval incubators could help to fulfil a quality control role that Governments have failed to provide thus-far.
This could allow ICOs funded by incubators to become significantly more desirable to investors compared to projects that had not received the same level of professional support. The hope is that by pushing quality projects to the top the general quality of ICOs will improve across the board, helping to legitimize this valuable form of funding.
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