Frauds permeate crypto projects but the honest ones may be as transformative as cryptocurrencies themselves.
Frauds have been stealing the thunder of actually innovative and genius crypto currencies. Although Frauds make up for the 81% of Initial coin offerings (ICO), it is the remaining 19% that actually becomes the reason why ICO’s are still issued.
ICO refers to the issuing of new currency or coins into the system, by backing it up with digital assets, sometimes Bitcoin and others else where. The back up is based on a legal tender that allows the currency to be accepted as a store of value and medium of exchange. The tender makes it functional and adds extrinsic value to the virtual coinage.
A little less than a half of these 81% do not see the light of the day after raising ICO funds. Only 44.2% (an overwhelming majority) survive around 120 days after raising ICO amounts. Remaining of these ICO’s, the rest really struggle to make it big in the world of hard entry, and already pronounced dominance of big names like Bitcoin and Ethereum.
Headlines, news charts, talk shows and financial analysis picks on frauds so often that the real-deal businesses fade away in serious limelight-depravity. The matter is mostly overlooked and the good ones fall short on popularity as a trend since quite early crypto days.
The honest businesses accounted for raising $7 billion for cryptocurrency initiatives in 2017. Frauds get through the crypto channels and projects because they’re hard to understand or verify at the beginning. It is only in the later stages that any analyst could figure that the project was a scam to raise ICO only. But the majority of non-fraudulent ICOs by number (not the value in dollars) are for ordinary business projects.
Good ICO’s prove that new ICO’s are as transformative and progressive as other cryptocurrencies. The good ones can chagne the way business operations are laid out and how smaller economies can build better ships to bigger ones. ICO funding could make many useful ventures possible that ‘cannot be funded today with either equity or pre-sales; and in other cases it might deliver a better product.’ Or a product in places where it is not possible at all.
Blockchain and ICO’s are an inevitable match, with no other option, ICO’s must develop a blockchain system to backup all transactions and hold notes of each account separate, based on a distributed ledger guidelines. A poor blockchain system and unbacked claims lead to the currency being deemed as illiquid and inconvenient. This may result in stagnation allowing the creators to walk away with the remaining ICO funds, either sold or stored. This allows them to cash out without losses or with compensation, defrauding all their users by worthless or crashed money left behind. A potential customer who would want to exchange token will have to search for a naive and less knowing holder willing to buy, and negotiate a price, before the investor realizes there is still time to quit. Fraud covered with fraud is the only way for a user to regain the amount lost in the failed currency.
But this holds true if the ICO was in for business for a few days at least. ICO’s exit earlier most of the times, as to legitimate genuine failures solutions exist.
They could use applications that are already available and would allow any customer to click on a price in some reference cryptocurrency (say Bitcoin or a Stablecoin) and have the exchange for the required token and transmittal to the vendor handled seamlessly. Plenty of intermediaries exist to keep the markets liquid.
According to the analyst Aaron Brown, Bloomberg:
Legal, financial, technical and regulatory infrastructure will need to be created, and expensive lessons learned by trial and error, before ICOs for non-crypto projects are ready for prime time.
The ability to convert the currency into another or the ease of currency conversion can also enable several ICO’s to save face and grace in the international market among other solutions.
ICO’s are not bad, the regulations and enforcement framework around them is not as strong as it should be to raise the number of new successful crypto currency businesses and startups.