Cryptocurrency has revolutionized currency transactions, and now people are finding even more uses for the digital currency technology. When startups need to raise money to get their businesses off the ground many are turning to ICOs, or Initial Coin Offerings, to fund their projects in an unregulated way. This method is similar to IPOs and even crowdfunding in that investors own something related to the company when they make an investment. Just like IPOs and Crowdfunding there is no guarantee you will ever get your money back. The risk in investing in ICOs comes from the fact that there is a small percentage of people taking advantage of the fact there are no regulations by scamming unsuspecting investors.
Jordan Belfort, better known as the Wolf of Wall Street, has warned against ICOs, calling them the biggest scam going as well as way worse than anything he ever did. A common scheme to be on the lookout for among ICO investors is the “pump and dump” scheme, wherein initial investors pump up the price of the ICO, recruit new investors, and then dump their shares and crash the price.
ICOs are risky, sure, but many people are still interested in using them just to say they got in on the ground floor. Risk is attractive to many investors, after all. Learn more about the rise of the ICO from this infographic: