It’s a bird … it’s a plane … it’s … an ICO?! Let’s check what their Kryptonite is
Initial Coin Offerings have just a few years back been an unknown in the investment landscape. They were introduced to the wider public by a panelist at the San Jose Bitcoin conference named J. R. Willet, who had an idea to start a new protocol layer on top of Bitcoin. With this began the (short but exciting) journey of ICOs — basically recorded on an amateur YouTube video that by writing of this blog surprisingly still has (believe it or not) only 476 views.
Since then the rise of ICOs has been exponential, but with their growth many of their vulnerabilities have started to show and the unregulated investment landscape has sadly attracted a fair share of fraudsters.
Some statistics to put things into perspective
According to the tracking website Coinschedule there has been 210 ICOs launched in 2017 raising around $3.9 billion. This number has already been surpassed in the first three months of 2018, as there were already 153 ICOs launched with about $4.9 billion raised. Therefore, not only is there a big increase in the projects launched in comparison with the previous year, but they are also increasing in size.
It is said that during the first two months of 2018 $1.36 billion worth of cryptocurrencies have been stolen by fraudsters through virtual currency scams, hacking attempts, theft, exit scams and phishing. This number also includes the top three scams (Coincheck, Bitconnect and Bitgrail), therefore if those would be excluded, the amount of money lost in first two months would represent $542 million. This means that in average $9 million are lost per day and at this rate the money lost in 2018 will be the double of the GDP of San Marino (for 2017 the estimate of their GDP measured by IMF was $1.6 billion).
I am not stating that every ICO is a scam, namely many these crypto startups are legitimate with a genuine motivation to succeed and to bring their business idea to life. However, statistics show that many of them are being done by fraudulent ventures, and according to a research from December 2017 by Ernst & Young, more than 10% of funds raised last year through ICOs were lost or stolen in hacker attacks. Additionally, according to the website bitcoin.com, 46 per cent of businesses that held ICOs last year have already been unsuccessful.
The A-List ICOs
Floyd Mayweather, DJ Khaled, Paris Hilton, Jamie Foxx, the Game, Steven Seagal…
You probably heard about them, but what do they have in common?
Well, they were all promoting different ICOs through their social media postings and tried to motivate their followers to invest into them. Seems like a purely philanthropic move from the rich and famous, right? Not exactly, as they all had ulterior motives and received money for this promotion, which they did not disclose. Luckily the SEC stepped in and issued a Public Statement saying that such payment for promotion must be publicly disclosed and a failure to do so would mean a violation of the anti-touting provisions of the federal securities laws. But based on the news that just last week the boxer Manny Pacquiao decided to promote an ICO, it seems that the SEC will need to take a step further to put an end to future celebrity A-List ICOs.
Example of two ICOs that ultimately proved to be a wolf in sheep’s clothing
One of the biggest news of the beginning of the year was the crash of BitConnect, a lending and exchange platform which at its peak had a market capitalization of more than $2.6 billion and their token on exchange was valued at around $430. BitConnect worked as a Ponzi scheme, namely investors who invested their money as a lending amount were offered earnings up to 40% per month. By this, BitConnect attracted more and more investors to back their unsustainable projects, which worked similar to a pyramid scheme. Until it all collapsed in January 2018 when only desperate investors who lost everything were left in the ruins of what Bitconnect once was.
Second equally interesting story is the ICO of OneCoin, which was due on 27 October 2017, but never seen the light of day. The Bulgarian authorities have made a raid at the company’s seat, however the founder — Ruja Ignatova (named the Bulgarian ‘’Crypto Queen’’), and all the leading people behind OneCoin went into hiding, leaving their investors with nothing.
Under some sources more than $300 million has been raised by 3 million investors and then transmitted through dozens of companies in tax havens. While the raid by the Bulgarian authorities may have been the last nail in the coffin of OneCoin, it also provided the perfect excuse for the company, namely the company representatives wrote in a public statement that because of this raid a great financial loss was caused and as a consequence the company may just have to file for bankruptcy. Basically, presenting themselves to be the victim of it all.
Based on all the facts presented above I would like to add once more the continuously repeated statement: ’’Never invest more than you are willing to lose.’’ As any other investment so should an investment into an ICO come with a sufficient amount of due diligence and research in order to avoid losing money.
Important is to check if the token’s developers are anonymous or otherwise-unknown, if the token does not have a clear use case and if the whitepaper sets unrealistic goals — these three basic characteristics are all clear signs that it is a great possibility that the ICO is a scam.
Last but not least: when the team behind the ICO looks like this, it might be good to think again before investing.
Jesus Coin — Team
There is no limit if logic.
The graphic designer Kevin Belanger might catch your attention.
Matevž Žnidaršič, Guest Blogger