Info-Graphs, Technology

The Rapid Rise (and Danger) of ICOs – Infographic

ICOs, or initial coin offerings, are starting to become a popular way to raise capital for startups and other projects. Unlike other types of fundraising, however, ICOs are largely unregulated and tend to be very risky. IPOs give people shares in the company, and even crowdfunding offers some sort of guaranteed return on your investment like merchandise or shares. ICOs give you digital coins that you can trade based on how well or how poorly the company or entity does, and if they go under completely there is no legal framework for you to get your money back. But they have become popular in spite of the lack of legal protections because so many people have made so much money off of them. As of October 2017 all time ICO funding reached $2.7 billion. So what’s behind the sudden spike in popularity?

Supporting a business that hasn’t been built yet with ICOs is very risky, but it’s just that kind of risk that supporters usually find thrilling. You’re betting on whether something will take off in the long run but you could lose everything if it never gets off the ground. Some people are attracted to this type of risk-taking activity, hoping it will take off and they will make a fortune.

There are plenty of cautionary tales, however. Jordan Belfort, better known as the Wolf of Wall Street, has been sounding alarm bells about ICOs, calling them the “biggest scam ever” and telling everyone who will listen that it is going to blow up in everyone’s faces. According to Business Insider, “Belfort told the Financial Times: “Probably 85% of people out there don’t have bad intentions, but the problem is, if 5 or 10% are trying to scam you, it’s a f**king disaster.”” This was after saying, “It’s far worse than anything I was ever doing.” It’s worth noting that this is a guy who once landed his helicopter in his backyard with one eye shut because he was so high he had double vision, so he does have some experience with making bad decisions.

A recent Business Insider study found that, “Cryptocurrency exchanges are rife with “pump and dump” scams that would be illegal in most markets and leave unsuspecting investors at risk of large losses. . . after the price rises, they attract other, unwitting investors to buy into the price momentum. The “pumpers” quickly sell the coin to make a profit. The coins often crash just minutes after the initial surge, leaving the second wave of investors with losses.”

ICOs can be a great thing for startups and even for investors, but proceed with even greater caution. Learn more about the rise of ICOs from this infographic.