ICOs remain risky ventures in 2019, here’s why

A new controversial way of making money with limited rules and regulations has captured the attention of many investors. It is called the Initial Coin Offering (ICO). ICOs were first introduced to the world in the year 2017 along with the digital coins’ market. The Initial coin offerings are all the rage these days building an appetite for a number of investors and cryptocurrency enthusiasts.

The ICOs however have continued to entice scammers. As investors continue to show that they are willing to place their money into highly speculative cryptocurrency, the number of fraudulent cases have continued to rise.

Before investing into the ICOs, users need to take some time to understand ICOs and how to differentiate a real investment from a scam.

What is ICO?

ICO or Initial Coin Offering is a method of making money by using cryptocurrencies. It is an alternative method to raise funds and is mostly used in projects that have not yet fully developed their blockchain platform, service or product. In ICOs unique crypto tokens are issued and sold in exchange for Bitcoin, Ethereum and in some cases the fiat currency which is also accepted.

Users participate in Initial Coin Offering by using tokens. A token is “a unit of value that an institution creates to govern its business model as well as authorize the users to interact with its product while making it possible to distribute and share the rewards with their shareholders.
Users make investments into certain crypto-currency projects with the expectation that the project will be successful. This steers a lot of demand and in turn, causes the tokens to increase in value.

The problem with ICO

It’s hardly surprising that the lack of regulations around ICOs has inspired a number of fraudulent campaigns. Ethereum’s blockchain has been the platform of choice for a number of scammers. In 2017, over 80 percent of the alleged ICOs were scams with the biggest one raising $660 and $600 million respectively.

When it comes to ICO, there is hardly any SEC regulation that can watch over all the investors being affected by fraudsters. The fast nature of cryptocurrency transactions has allowed frauds to escape with people’s money long before the people even realize it.
However, as long as ICOs continue to have a strong record of high returns, the temptation to invest in the platform will continue to rise. The scams usually hit the people hard with many losing a lot of money and understanding ICOs before investing a coin into any platform is always encouraged.

Most recent ICO scams

Earlier this year, two blockchain platforms RepuX and JoyToken scammed backers out of $4.7 million and $3.3 million respectively. Here is a list of another three of the most recent cryptocurrency scams.

●The South Korean Ponzi Scheme – Investors in South Korea, mostly senior citizens, were defrauded of $18.7 million.
●ICO Fraud in Canada - Kevin Hobbs and Lisa Chang defrauded their investors a total of $30 million.
●Taiwan Bitcoin traders Scam – Several Taiwanese men have been accused of defrauding 1,000 investors of $51 million after assuring investors of 335 percent returns.

Is investing in ICO safe? 

Ponzi schemes and ICO exits are still prevalent today. Anyone can put together a project, create a convincing website and business proposal through the blockchain platforms.

Investing in ICO campaigns is often a gamble. Blockchain technology is still in its infancy and the regulations are far from comprehensive. Even if an investment proves to be legitimate, a study by  Invest in Blockchain revealed that 60 0ut of 100 of the top cryptocurrencies by market share has yet to release services or a working product into the market. This is despite raising millions into their ICO campaigns.

Conclusion

When it comes to investing in ICOs, a healthy dose of skepticism is a good thing and it’s also important to keep an eye out for any red flags.

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