#4 – All ICOs Are Scams

This post is part of a larger series of post titled
The Top 10 Cryptocurrency & Bitcoin Misconceptions | Misunderstandings | Concerns | Perceptions | Criticisms in 2017

Recently, the “Wolf of Wall Street” was not shy about what he thought about ICOs. He’s not the only person to ever have this view. A lot of people feel that ICOs are mostly scams. In my experience, the subject of ICOs usually brings out some pretty strong negative reactions.

“All ICOs are scams” may be a bit of a hyperbole. I’ve found that If you can get to the root of the issue it’s that people that use this argument like to first point out that apparently all you need to run an ICO is a whitepaper, a website and a roadmap to promise that something tangible will be produced in the future. Then they say they aren’t surprised that ICO companies don’t have to go through the same underwriting process that non-crypto companies must go through if they want to do an IPO. It’s more likely that these ICO companies were rejected by all other traditional forms of fundraising. In other words, why would a legit company want to run an ICO if traditional forms of financing offer more stability for the owners?

The simple answer is it’s not easy for cryptocurrency startup companies to get bank financing. The market is still largely misunderstood and industry leaders and governments still don’t know what to make of it. Put simply, it’s not clear how things will play out right now. Banks still remember the last financial crisis and rather and not surprisingly, are a little shy of new risks that might carry hefty fines.

Regardless, I don’t entirely agree that the majority of the ICO market are scams by the strict definition of the word. I think a lot of folks are throwing pasta at the wall to see if it sticks. A lot of things that look silly may or may not take. Probably the majority of the ICOs that we know from today won’t exist in ten years. That doesn’t make them scams, it just means that, for whatever reason, the business model didn’t pan out.

I haven’t read a lot about investors getting nabbed by pure ICO scams, but this is just the beginning. The United States SEC enforcement division recently shutdown two companies that faked ICOs (REcoin Group Foundation and DRC World). Of course, more exist and others don’t get caught. I am worried that more negative press will just continue to fuel the overall public perception that the entire ICO market is shit. Thus, it would be nice if the industry acknowledged the and worked on the issue. Some companies and individuals are trying. Here are a few examples that I’m aware of:

• Blackmoon Crypto had a downside buyback program were 30% of the proceeds from BMC Distribution were reserved for a guaranteed buyback of BMC tokens at 80% of the Distribution Rate.

• In addition to an exchange, Cobinhood started an ICO underwriting service that will choose review and select high value companies to launch. The first company to go through its underwriting service will be CyberMiles.

• Bruce Fenton recently wrote on coindesk.com that the industry needs an ICO evaluation standard:

“To make things worse, digital assets don't even have a common set of criteria by which we evaluate them. With public companies, we can compare earnings, balance sheets and other similarly calculated metrics. For digital assets, there might not even be a balance sheet; you might be making a donation to a non-profit or purchasing an API key.

There is a need for a uniform set of criteria that people can to evaluate the merit of various assets. To help investors sort the rare gems from the abundance of junk, I’ve made a simple tool called Spacesuit X for analyzing the investment merits of coins, tokens, ICOs and similar projects.”

• Jaron Lukasiewicz devised and recommends a SEC compliant ICO model called FACTS (Fair and Compliant Token Sale) on coindesk.com. He believes this model will make ICOs more of a mainstream financing method. You can read the entire article here.

I’ll admit that I can get a little defensive when a person criticizes crypto (sorry little brother), but after much reflection on this topic the haters are right. ICOs more advocates and some level of oversight. Not exactly sure what that means, but hopefully it means some sort of layer of protection for us all - and not only for those that are blinded by an ICOs hype because we all can get caught up.

Traversing the Cryptosphere,
Kryptonaut