What are the risks in an ICO?

Just as investment returns in an ICO can be big, so too can its risks be. This publication aims to serve as a beginner's guide to the risks in ICO.

The cryptocurrency market is still under-regulated. This means that investors may be left on their own should an ICO turn out to be fraudulent or should the project fails.
However, the market watchdogs have the ICOs on their radar. In the month of July 2017, the United State securities and its Exchange Commission made mention that they may apply federal securities laws to certain ICOs on a case-by-case basis. In the month of September the same year, China temporarily banned ICOs until market regulations are put in place. The EU also intends to issue regulatory guidelines for ICOs in 2018.

For now, although it may seem as an unregulated booming market and possibly a bubble that few experts caution may sooner or later burst. Therefore, investors ought to consider the risks very cautiously. It is not ,in fact, uncommon for an ICO team to simply run off with money from investors.

It is advisable to consider avoiding an ICO if:

• The developers behind the project are anonymous, make usage of false identities or possess fake accounts on social networks.
• The team lacks the requisite skills and professionals with relevant experiences.
• There is an absence of a legal entity.
• The whitepaper and business plans seem unrealistic and also lack the detailed analysis of the market and its competitors.
• The authors of the project do not provide examples of their blockchain codes.
• There is lack of a working prototype.
• There is no existence of an escrow wallet for delivering investors’ money to developers (preferably in parts) only when some criteria are met.

Please note that these are just some of examples of possible red flags, and they are not everything one ought to know about ICO risks. I do not take responsibility for any investment decision taken. Investors should always assess projects and their related risks themselves.