Wed Sep 14 2022
The cryptocurrency craze continues to fuel investor appetite for digital currencies, even as some hedge funds grow wary of the asset class. While Bitcoin's extreme volatility may plague some investors, some are using the current decline as a buying opportunity, but not necessarily Bitcoin.
Bitcoin is the most prominent face of the current phenomenon, but according to Forbes, initial coin offerings (ICOs) exploded in 2017, raising nearly $5 billion. Some of these offerings give investors potentially good traction in this new and often poorly understood asset class without the huge outlays required to invest in Bitcoin.
It provides an opportunity. Unfortunately, the growing popularity and awareness of altcoins have also fueled various scams and outright criminal activity.
Meaning of ICO
An Initial Coin Offering is the issuance of a new coin, a type of digital asset. ICOs can introduce new cryptocurrencies, but these are often created through a separate process called mining. ICOs work like the issuance of new shares. Once the ICO takes place, a large number of investors can buy the coins. However, unlike regular exchange accounts, ICO coins are generally created and distributed using blockchain, the technology behind cryptocurrencies and other modern asset tracking solutions.
5 things to know before buying an ICO
Since retail investors use real money to invest in digital assets, here are 5 things you should know about ICOs.
- ICOs provide little protection for investors
- ICO scams are real
- Investors lose millions of dollars in ICO theft
- Receiving future tokens is not guaranteed in an ICO
- "SAFT" does not make the ICO safe
So far, many ICOs have been offered outside the existing regulatory system. Without specific disclosures and customer access to documents required by US regulators such as the Securities and Exchange Commission (SEC) to help investors make informed investment decisions, ICO promoters and issuers can provide tokens or coins to investors. Fraudulent schemes and tactics are more likely to occur without regulation. Investors have little chance of recovering their invested funds or holding the parties responsible in the event of fraud. The SEC and the Commodity Futures Trading Commission (CFTC) have issued guidance to market participants who may be acting illegally or engaging in suspected fraudulent activity related to ICOs and cryptocurrencies. And took action.
Counterfeiters follow the money. Therefore it's no surprise that ICO scams are popping up and being dealt with by regulators. For example, the SEC recently stopped fraudulent ICOs. Individuals and companies promoting ICOs used their websites and social media to lie about their affiliations with well-known and reputable organizations. It claimed to have lured investors, including false customer testimonials. The SEC and law enforcement recently accused individuals of organizing a fraudulent ICO that raised millions of dollars from thousands of investors over the past year. They allegedly sold unregistered investments and made fictitious claims about how the funds were used. These individuals use fake profiles of executives with impressive bios, post false or misleading marketing materials on company websites, and pay celebrities to promote their ICOs on social media. It is said that Below are examples of fraudulent ICOs.
An investigation found that in 2017 he lost or had his $400 million in ICO-raised funds lost or stolen. Hackers are stealing money and tokens and gaining access to investors' personal information, such as addresses, phone numbers, bank details, credit card numbers, and more. An ICO has many touchpoints where problems arise (e.g., digital wallet providers). As such, be aware that cybersecurity vulnerabilities may exist, and many companies may operate internationally without government oversight.
An investor's ability to receive tokens in the future typically depends on specific trigger events such as New Company Development and Related Future Token Public Sale. It may not be done. Tokens obtained from an ICO have no value or can only be redeemed for goods or services from the token issuer. Additionally, there may be no opportunity to trade or exchange Tokens.
Some market participants use simple agreements for future tokens (or SAFT) to open their tokens to the public. SAFT is an investment contract that appears to be modeled after his SAFE (Simple Agreement for Future Equity) contracts created in securities-based crowdfunding. Please note that an investment in a SAFT contract does not mean that the offering is "safe" or complies with applicable federal and state laws. With SAFT, issuers typically advertise that the tokens they buy are initially offered as security (or "security tokens") subject to federal securities laws but then change to "utility tokens." which operate outside the scope of federal securities laws. Issuers can demonstrate that their coins can be used for future access, rewards, or company product and service discounts. There isn't any assurance that the SEC or a court will agree with the company's assessment of the token's ability to transition from a security to a non-securities product. Determining whether something is a security is an analysis of facts and circumstances; the title does not change that.
Examples of successful initial coin offerings
Some of the most successful initial coin offerings have raised billions of dollars. Many successful ICOs are in the technology sector, but there are numerous opportunities for businesses of all sizes.
The five most successful token launches to date are listed below.
Ethereum is one of the first initial coin offerings. Unlike its ancestor, Bitcoin, Bitcoin is more than just a digital currency. Ethereum is a blockchain technology used to develop decentralized apps via smart contracts.
IOTA conducted its ICO using the concept of blockchain-based integration with Internet of Things technology. Their decentralized trading ledger provided a fee-free and scalable environment.
Stratis is a programming language-compatible platform that enables businesses to test, build, and deploy apps. All of this without having to maintain or set up your development environment. Their ICO raised about 1,000 BTC. This was worth $675,000 at the time, and now he's worth over $8 million.
EOS is a popular cryptocurrency that raised over $185 million within five days of its ICO launch. This makes it the largest ICO in history to date. The whitepaper claims that EOS is a viable alternative to the Ethereum network. They offer a range of tools for businesses that work seamlessly on the blockchain.
NXT, formerly known as Antshares, is going through two rounds of token sales. The service, which has ties to Microsoft and the Chinese government, started at 3 cents in his first ICO. The coin's value increased from October 2015 to January 2018 to $180. NXT, which describes its offering in its white paper, is one of the most comprehensive ROI coin offerings.
ICOs are a creative new approach when considering corporate fundraising. While the early coin offering has potential drawbacks, it also has notable advantages. It is a great crowdfunding vehicle as it can yield huge returns from dedicated investors.
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