The creator of the Ethereum ERC-20 token standard, Fabian Vogelsteller, is proposing new technology which will make initial coin offerings (ICOs) reversible, meaning investors can withdraw their funds from the ICO at any time. This will give investors full protection, which would eliminate fraud. This new form of crowdfunding might be called RICO, which stands for reversible ICO.
The ERC-20 token standard is an easy, efficient, and secure way of launching a cryptocurrency via an ICO. A smart contract can be created with ERC-20, where investors send Ether to the smart contract and receive their tokens. This technology has led to USD 20 billion of investments into ICOs in the past two years and has been a boon for the entire crypto space. Unfortunately, a significant fraction of ICOs end up not delivering on their promises of new blockchain technology or in the worst case scenario, end up being outright scams.
Vogelsteller said he feels “obligated to come up with something better” since, without ERC-20, scam ICOs would probably be much harder to pull off and occur less frequently.
The proposed RICO would allow investors to send back their tokens at any time to the smart contract address and get back the Ether they invested. This would give RICOs strong motivation to deliver on their promises, instead of misspending the invested money, since if the RICO fails then all the money will be taken back.
Vogelsteller said, “You are able to withdraw the funds you committed at any point of time and you do this by simply sending back your tokens… It brings the balance back between the community and the project and I think this is really important.”
If RICOs are implemented, then catastrophic ICO failures due to mismanagement or fraud will become a thing of the past. RICO projects will fail naturally and investors will be safe, rather than ICOs hurting all the investors if they don’t deliver. This is good for companies conducting RICOs too since lawsuits would be less likely if a failure happens as investments would be automatically returned.
One aspect of RICOs that remains unclear is how there will be a balance between the company getting the funds it needs and the investors being safe. For investors to be 100% safe, companies that conduct RICOs would never be able to touch any of the invested Ether, which is probably not the way they would prefer to work.
Vogelsteller will demonstrate an RICO in real-life when he launches his fashion and design blockchain Lusko. At that point, the concept behind RICOs should become more clear.
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