The Risks Involved Investing in Centralized ICOs

in #bitcoin7 years ago

For a while now there have been more and more ICOs, initial coin offerings, being offered to the public , but many people are unaware of the risks that they carry. I am not completely against ICOs and I know people are going to invest in them anyway, so I want to warn you about what to look out for. I have some golden rules to follow if you want to invest in ICOs and make sure you aren’t being scammed. With record breaking amounts being raised weekly, you need to be on your feet and know what to look for.

Due to the rise of many altcoins like ethereum, many people who have had great returns are looking to diversify and buy into a few ICOs in hopes of getting a return. Because many of the ICOs are tokens being offered on the ethereum platform, it also makes it easier to understand and invest in. However there is a key flaw I am seeing with many of these ICOs that people are overlooking, they are more centralized than you think. One of the main reasons bitcoin has gotten as far as it has currently, is because it is extremely hard for a government or outside force to shut it down. If they could have shut it down when the market cap was a billion they would have.

With new laws being proposed for people to actually claim how much bitcoin and other coins they own and the Security and Exchange Commission pledging to crack down on unregistered securities, decentralization is important more than ever. Many of the ICOs that are being offered not only are completely centralized, but they are from organizations that have intentions of or are incorporated. This means that if the government decides to crack down hard on these ICOs they are going to go after these people and hard. While the tokens will still exist, the developers would most likely completely abandon the project, leaving the tokens worthless.

There is one thing the Security and Exchange Commission is good at and its keeping their monopoly on securities. They will do anything in order to make sure that if you want to raise money or assets you will have to go through the legacy system, which means that if you are going to raise money via an ICO, you better be decentralized on every level. No corporations, nothing that can be seized or shut down, completely and utterly decentralized. Many of the projects raising money are incorporating to get large sums of money and plan on blowing it over time paying themselves high salaries and brining nothing to show for it.

The next thing you have to look out for is if you are actually getting anything in return for your investment. This sounds stupid, but I have seen at least 3 successful ICOs that although they are offering tokens, if you read in the terms of services it states they don’t actually mean anything and don’t offer any type of ownership. While they might claim this is so it can be legal and above board, the actual raising of the money is illegal in itself and it absolves them of all duty to actually deliver something. Make sure you read the terms of services and see if you are actually getting something with your investment.

The third and final major red flag you should look out for is how anonymous the developers really are. There is one thing about wanting to keep yourself anonymous for your own privacy reasons, but if you are going to be a developer for, in some cases, tens of millions of dollars, you want to be damn sure someone is at least putting their reputation on the line. Ive been in bitcoin since 2012 and I remember many scams were people who were anonymous just walked away , cashed out and are now probably living on an island somewhere. Even people who put their names on the line ended up doing the same thing, but for the majority of them, they were held accountable. Don’t invest your money with a phantom because they will take it, claim it isn’t real money and run away.

Like I said earlier, people are going to invest in ICOs whether I warn them to or not, so if you are, just be careful and look for red flags. When in doubt do your own due diligence and make sure everything they are claiming checks out. I have seen everything from blatant lies to people impersonating others on offerings and sometimes a simple email or phone call saves you and many others, a lot of money. Be safe and make sure that what you are actually investing in is what it seems.

  • Calaber24p
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Every man and his dog are jumping on the ICO and #shitcoin rally at the moment. Scary place to be.

You had me at shitcoin!

This is a great article. Thank you for pointing out something that most ICO investors speculators probably don't consider. The article did leave me with a few questions though:

  1. What constitutes a centralized ICO? Is it the same thing as a centralized blockchain? If not, how is it different?
  2. Can you give us some examples of centralized ICOs? Perhaps it would stir up some concrete debate as to what aspects of centralization are the most dangerous and how to model ICOs to prevent it.

This post received a 4.6% upvote from @randowhale thanks to @calaber24p! For more information, click here!

Regulators seems to be taken unaware of their businesses, a place where they control the outcomes.
I think the crack down effort should be focused on leveraging on the new trend in technology to provide secure investment protection and win the people than trying to fight back this disruptive technologies.

Yeah the devil is certainly in the details. Terms and Services -- glad you pointed that out. We are so used to easily checking boxes these days. Opening accts here, subscribing there...We just check, click, and give away our info and in the crypto world we are easily giving away our money without decent due diligence. Thanks for your post man and #BigUps for being a vet already. BTC since 2012?!? Wow 🙆 👊

So many ICOs. When they started I was pretty excited but now I can't help but yawn.

Not to mention the levels of risk involved.

yeah definitely, and these creepy ICOs especially the ones who are based on Ethereum's blockchain are hurting the currency. It feels like as if people are dumping their ethers with RIO expectations without knowing the consequencies.

With so many ICO's hitting the market it reminds of the "I'll make your rich HYIP's. Here today and gone today!

Yeah the ICO hype is strong. Good on you for giving others some tips so they don't get scammed. I know I personally will apply these tools when looking for a ICO investment. I resteemed this article, cheers.

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One other thing to watch for is the number of coins being sold and the number held back by the dev's. They may also be taking a percentage right off the top of the amount raised in the ICO.

Great article thank you

looks like another bubble to me, in reality people won't recognize/memorize more than 20-30 cryptocurrencies anyway. So most of these ICO's - well yeah will be forgotten.