Ethereum-Based ICOs: A Boon or a Bane for this Cryptocurrency

Neeta GuptaBlockchain, Cryptocurrency, Ethereum, Fintech, ICOLeave a Comment

The ICO world’s love for Ethereum is not hidden, but the effect ICOs are having on the price of Ether has raised many concerns. A considerable amount of Ether is being raised and exchanged to fund the ICOs. The increase in demand has led to a raise in sell pressure for Ether.

To understand this better, let’s take a case scenario where an ICO heavyweight is introduced and raises over say $480 million in Ether right from the beginning of its yearlong token sale. The huge amount raised will create a sell pressure for Ether isn’t it? But this sell pressure in the long run can have a positive effect on the value of Ethereum which shouldn’t be ignored.

The Boon

A wide range of industries from Banking to gaming are trying to expand into the Blockchain space. Here ICOs play a major role and provide necessary funds to take the leap. A good ICO funding an influential project definitely pulls in more attention to the Ethereum Blockchain and promotes cross-industry collaboration.

A cross-industry collaboration isn’t the only way ICOs add value to Ether.  During an ICO, new ERC20 (Ethereum-based tokens) are created. The more and more these tokens are used, the more demand it will create for Ether by way of transaction fees(gas).

The Bane

As the crypto-currency world is neither regulated nor monitored, the genuineness of each new ICO is questionable. A bad/fraud ICO will dump the Ethers raised in the market as well as fail to deliver a product bringing the value of Ethereum down. Though with the implementation of rules and regulations, we believe this behavior will be reduced however, every negative effect of an ICO can’t be fixed but monitored.

For e.g. As a company cashes out Ethers to fund its project, it releases a large quantity of it in the market.  The effect of this will be decrease in the value of Ether. Most company’s do lock up a certain percentage of ICO funds but in the end Ethers will be all sold-off to raise the funds.

Conclusion

In the end, the detrimental effect that an ICO has on the valuation of Ethereum is considered to be short-term. However, the hike a successful ICO brings to the value of Ethereum is long-lived.