According to a study reported on earlier this year, up to 80% of all initial coin offerings (ICOs) are scams. One need look no further than a series of high-profile ICOs with shady endings and aftermaths to find confirmation that the space is riddled with illegitimate activity. Nonetheless, the ICO space remains a focal point for cryptocurrency investors. Now, a new report by Crypto Daily indicates that scammers are still taking advantage of overzealous investors hoping to cash in on the latest ICO craze.
Risk to Investors and Regulatory Mechanism
The risk of scam ICOs to investors is clear; invest money in a fake ICO, and you may never see it again. At the very least, you're likely to not receive the big payout that some ICOs unethically boast about. But there are other reasons why scams harm the broader digital currency community, too. Development teams behind legitimate ICOs find that the PR surrounding scam operations can overwhelm their efforts at growing their product. Many ICO teams have to take preemptive measures to ensure that opportunistic investors don't attempt to spoof a new token or coin, thereby manipulating its price.
Perhaps even more impactful is the effect that scam ICOs can have on regulation. As lawmakers attempt to protect their constituents from what they perceive to be an onslaught of false offerings, they may be more likely to ramp up regulation in such a way as to put undue pressure on legitimate offerings in the process.
Secondary Industry to Protect ICOs
Legitimate ICOs facing trouble because of the culture of scams in the space do have some avenues of assistance, however. Companies like Metacert have emerged in order to protect internal communications at ICO teams and to help protect investors in these real offerings. Still, scammers evolve their efforts just as quickly; it's relatively easy for a malicious entity to copy a landing page for a legitimate ICO, thereby funneling off investments made in earnest. If and when the fake site is revealed, scammers typically simply delete the copied pages and make off with the money they've stolen. The ICO for popular token Telegram experienced at least 10 such copycat sites during its offering.
As long as there are ICOs, there will continue to be scammers attempting to capitalize off of them. Investors are advised to remain cautious.
Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns bitcoin and ripple.