ICO News: One in five ICOs are frauds; investors undeterred

The fact that one in five ICOs turn out to be scams has been doing the rounds on news outlets today. However, interestingly this doesn’t seem to be putting investors off investing in them, statistics suggest. Even the tightening of regulations across the globe hasn’t slowed the proverbial cash cow down, according to research from Smith & Crown.

ICO News: One in five ICOs are frauds; investors undeterred

ICOs are growing in popularity

Roughly $6.6 billion was raised via 217 ICOs for the first quarter of this year. This constitutes a massive 65% increase from the $3.9 billion (itself a record, at the time) raised in the final quarter of 2017.

Cryptocurrencies are made possible by blockchain technolog. This is why at one time, to begin with, most ICOs were launched by blockchain start-ups.

However, in 2018, this has changed somewhat...

Nowadays, lots of other kinds of companies and organizations are choosing to run ICOs in order to fun their respective projects.

Indeed, even companies that don’t specifically require the use of blockchain technology are using them.

ICOs or securities?

This is something that the SEC (U.S. Securities and Exchange Commission) isn’t very happy about.

The regulator argues that if money is being raised via an ICO, the tokens (coins or cryptocurrencies) being sold to investors should be intended to be used with an ecosystem or ‘working product’.

And not, as is often the case, as a thinly veiled substitute for securities. Some firms run ICOs to cheat the system and effectively sell tokens that are actually securities to get around SEC regulation.

A significant proportion of ICOs show signs of fraud. In a review of 1,450 digital coin offerings, the Wall Street Journal found that approximately 19% of the sample ICOs (which had raised about $1 billion in total) raised red flags that included: "plagiarized investor documents, promises of guaranteed returns and missing or fake executive teams.”

‘HoweyCoin’

HoweyCoins Homepage

Last week, the SEC set up a fake ICO called ‘HoweyCoin’ to highlight some of the common attributes of fraudulent ICOs.

If would-be investors click on the link to invest in HoweyCoin, they are promptly redirected to a page on the SEC’s website warning them of the risks of blindly investing in ICOs.

The SEC’s creative approach to educating investors made headlines across the web and was generally well received by crypto-enthusiasts throughout the Twittersphere.

In spite of the high risks involved in launching and buying into ICOs, as is often the case with risky investment opportunities, there can be massive payoffs for both founders that want to raise capital, and investors who want to make money.

Ethereum’s ICO

One of the first and most successful ICOs ever launched was for a cryptocurrency called Ethereum.

Ethereum is now the second largest cryptocurrency, behind Bitcoin, and is the go-to coin for the funding of ICOs.

The vast majority of ICOs accept donations in Ether (Ethereum’s native currency) only which, amongst other things, helped fuel Ethereum’s success as both a currency and a platform for other currencies and programs and smart contracts.

In many ways, Ethereum is superior to Bitcoin – in terms of functionality, at least.

Whether it will eventually surpass Bitcoin in popularity remains to be seen.

Ethereum's ICO sold 60 million Ether coins in 2014 to raise capital in the form of 31,000 Bitcoin (BTC).

The SEC recently began investigation whether or not the Ethereum ICO was actually a security sale.

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