A Safe ICO: Ideas and Suggestions

  • by Sergey Besedin
  • July 30, 2017
  • 0

Blockchain technology is a distributed system of data transfer from person to person without the presence of a mediator. In a typical scenario, the mediator has the trust of the business partners which is obtained through past performance over an extended period of time or through regulations.  The rules by which the mediators operate are out of control of the business partners and can change without notice.  With Blockchain, the role of the mediator is accomplished at the programming layer and is unaffected by the human factor.  This trustless and anonymous mediation is a major reason for the growth and interest in Blockchain.

ICO, is a digital instrument for raising funds for the development of a new startup company offering a digital coin through Blockchain.  The proposed startup, which attracts funds through the ICO, publishes a series of tasks that need to be completed through set stages that help to achieve the final goal. Moneys from the ICO are distributed in staged tranches to provide motivation for completion of work and will protect the investor from loss of an investment.

But here the question arises: who decides whether the team has performed the work at the current stage or not?  Is it the startup itself, an arbitrator or the investor?  We need to consider each of them and their motivation when making a decision.

  1. The Startup team – No matter how determined the startup team is to meet their goals, they may be influenced by the money obtained through the ICO offering and may not be as motivated to work to their full potential. Thus, it is inadvisable to impose on the startup team a duty to define the tangible deliverables of each of the stages.
  2. By placing the ICO funds in escrow – The escrow account acts as an arbitrator.  On the surface, this is an ideal option as an independent mediator makes the decision.  But, why would the arbitrator be trusted if behind it stands the human factor which is subject to manipulation.
  3. The Investor (s) – The Investor is the one most interested in the success of achieving the goal as they must decide the fate of their money and are most interested in the safety of their funds. No legislative acts or supervisory commissions can influence the resourcefulness of a person who will bypass any prohibition.

In conclusion, an ICO is a crowdfunding system of fundraising as there is more than one investor and each of them has their own point of view.  There is a generally accepted form of confirmation for making any decision, by the majority.  In Bitcoin exists the same form, where to confirm the legitimacy of the transaction 51% of the community vote is enough.  This form of decision making has established itself over several years, thus, it can be safely used in the future.

In view of the above we can see where investors with an additional system of decision-making by the majority, is an uncompromising control lever.

The form that will allow decentralized management of the budget of collected funds for the implementation of the project, where each of the sides will be responsible for their promises on the one hand and for their goal to make the most effective investments on the other hand, is ideal.

 Photo Credit © Shutterstock

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