How to spot a dubious initial coin offering
By Cryptocurrencies may be getting a hard time from regulators around the world at the moment but between January and May of 2018, 414 startups were able to secure cured over $9,660 billion from initial coin offerings (ICOs).
A report released by CoinSchedule showed that the figure is higher than the total figure raised in 2017 – $3.88 billion. There was an excess of 200 Initial Coin Offerings in 2017.
ICO refers to an unregulated means of raising funds for a new cryptocurrency venture. It is used by start-ups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks. The first successful ICO issued by a Nigerian start-up was from SureRemit. The company was able to raise $7 million three weeks before the end of the ICO.
While startups are attracted to ICOs because they are a lot more cost effective in raising funds than initial public offerings, cyber criminals see it as a goldmine for fraud. Analyst at Deloitte Nigeria earlier in 2018 predicted a proliferation of cyber fraud using ICOs. That prediction is already happening as fraudsters are cashing in on by offering bogus ICOs.
So how does one spot a dubious ICO?
There are a wide range of ICOs available for investors to choose and this makes it difficult to carry out due diligence. However, legit ICOs have similarities. For instance, there must be a whitepaper. A whitepaper which represents the startup’s business plan gives an investor the chance to get in-depth details about the startup’s long term plan and vision prior. Where a startup is unable to present one, the ICO is likely to fail.
ICOs that are likely to do well do not make bogus promises of huge returns. It is a general rule of investment – no guarantees. However, an ICO that promises huge benefits is major red flag.
A good ICO usually comes with founders that have been in the market for the underlying product for years, and they are knowledgeable about crypto or have staffed their team with crypto experts. So research the team.
Finally, an ICO of any kind has its currency system and sale progress that should be easy to view. Dubious ICOs will hide progress behind individual contribution addresses.
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