Initial Coin Offerings (ICOs) are for crypto assets that don’t exist yet. The creator could be an individual, group, organisation or company with an idea and perhaps a minimum viable product (think prototype).
They can raise funds to develop, launch and run their idea through an ICO where investors purchase the crypto asset at a set price as early investors if they believe in the feasibility of the concept. At a later date the ICO will end, hopefully the idea will come to fruition and the crypto asset will trade on exchanges at a higher price than it cost ICO investors. This process can take months or years or often never happens.
These new crypto assets don’t represent ownership of anything other than the token itself which is usually used on the new system the issuers are creating.
The ICO space has been and will continue to be riddled with scams whilst at the same time it is a growing method of launching new ideas in the same way crowdfunding grew enabling entrepreneurs to launch products that they otherwise would not have received investment funding for.
ICOs are generally completely unregulated and are high risk and it is important to not even consider investing into ICOs until you consider yourself to be very competent in your understanding of how crypto works. If you are interested in ICO investing it is incredibly important to do a LOT of research into the project covering areas such as:
Do they really need a new crypto token for this idea?
Do they really need to utilise blockchain technology?
Do the tokenomics add up, is it offering realistic value?
Is their idea original and good?
What is the size of their target market and what share are they aiming at and is it reasonable?
What is their competition doing?
Do they have a minimum viable product for you to test before investing?
Is their business plan (white paper) practical and realistic?
Are the team behind it credible and experienced?
How transparent is the company, are they following any legal jurisdictions?
What are other peoples opinions of the ICO?
As you can see there is a lot of information to analyse and due diligence required before investing in an ICO. Due to this, ICOs are a common method of scamming people. Some examples of ICO scams that have already happened:
PlexCoin ICO was halted by the US Securities and Exchange Commission (SEC) in response to an official complaint the founder was defrauding investors. He is a past financial criminal using fake experts and promising 1,354% returns. $15 million was raised and is now frozen in accounts.
Benebit ICO raised $2.7- $4 million. The founders were using fake pictures of themselves but appeared to be a legitimate company. Once revealed they closed down and disappeared.
Veritaseum ICO was called a scam after $5.4 million of crypto was ‘hacked’ from them.
Opair/Ebitz ICOs supposedly created by ethical hackers launching a decentralised debit card who then went on to steal £4.5 million in just 2 days.
Savedroid ICO founder ‘pretended’ to exit scam with $50 million only to turn up days later saying it was a publicity stunt.
There are many, many more!
These are just a few examples of the 1000s of scam ICOs, they are particularly attractive to scammers due to the anonymity offered by the internet and cryptocurrency transactions and the lack of due diligence done by the proliferation of investors looking for a get rich quick investment.
Investing in Bitcoin is risky, investing in alt coins is even riskier but investing in ICOs is the riskiest of them all and we cannot recommend it.
This is a very brief overview of ICOs, we recommend you do much more research.