Internet has led to the creation of many successful organizations that seem to defy the traditional economic laws.
Let’s take the case of blogging: The Huffington Post has grown on free content written by volunteers. Wikipedia proves that users will not only seek information, but are willing to contribute and create value themselves. To continue the list one can mention TEDx, Kickstarter, Creative Commons, Creative Mornings and many other examples.
All of these initiatives have two things in common: a strong social mission and network-based organization. Their emergence couldn’t have happened without the public’s impulse to co-create – communicate and directly participate – in other words to collaborate openly.
Open collaboration is based on a non-hierarchical, diverse structure. Each participant contributes as much time and effort as he desires. Only responsibility and consciousness of each member is the driver to success. Open collaborations perform well even in adverse environments, for example, when cooperators are members of a minority group, or when “free riders” tag along. In the recent study of Open collaboration Professor Sheen S. Levine of Columbia University and Michael J. Prietula of Emory University note that these organizations defy the old standards. Entities like Wikipedia are of a new kind: “not quite non-profits and not quite corporations.”
And if that’s correct for projects based on free content, what can one say about ICOs and the emergence of cryptocurrency market? Can we compare ICOs with “social projects” like Wikipedia, given the fact that ICO participants are profit oriented in the first place?
The answer is yes. For an ICO to be successful, its participants need to come together and demonstrate a high level of trust in the project, and in each other. What actually makes ICO a new form of an organization is innovation and technology that make online investing credible.
Over the past decade online security tools have proven themselves to be so credible that people got used to freely providing their banking details during online shopping. The emergence of new cryptocurrency showed that people consider online business credible enough to fund new projects without really knowing it’s owners or without having seen the product itself. Moreover people are even ready to invest fiat currency in altcoins.
It’s widely noted that ICO’s lack legal regulation: none of the usual regulatory documents, including financial statements and approvals from the SEC, are needed to launch an ICO. So how did the new financing ecosystem gain credibility? The answer is – self regulation based on technology and word of mouth. So far, ICO’s have relied on reputation and identity of the founders. For example, in the recent ICO of Filecoin, the early backers included Sequoia Capital, one of the most reputable venture capital firms that previously invested in Apple, Yahoo, Google, YouTube, Instagram and WhatsApp.
But if revealing the sponsors’ names and releasing Whitepaper help create trust, the Escrow wallets or Proof-of-stake consensus are tools that either secure the investor’s money and even offer refund guarantees or suggest that even small holders will have a chance to receive rewards. The ICO issuers need to gain investor’s confidence and they are ready to use new technology to engage in responsible disclosure practices. Some projects take initiatives to estimate the risks and advantages of certain ICO’s, for example the ICO assessment platform launched by ICO rating.
Even though the risks of investing in ICO’s are still high, the ICO community has shown a high a level of responsibility. Even if the Securities and Exchange Commission does not move to regulate ICO’s, more self-regulation tools should appear this year. For companies in the crypto currency market it is a great chance to take the initiative and position ICO’s as a new form of organization that can prosper without government interference.