As Initial Coin Offerings are rising in popularity, experts are advising investors to be careful about fraudulent token sales.

Fraudulent ICOs

Initial Coin Offerings, or ICOs, have become increasingly popular over the past year. Many interesting projects and startups have decided to raise funds through ICOs instead of through venture capitalists. According to the cryptocurrency statistics website CoinSchedule, over $3 billion was invested in many different token sales this year alone. The reason why so many individuals and hedge funds are heavily investing in ICOs is the potential high return on their investments.

Most ICOs have returned very impressive returns for the early investors, and thus they manage to catch the attention of more new investors. But some experts warn that potential fraudulent ICOs might try to abuse the current market trend in order to raise funds without delivering any products. In a recent CNBC interview, co-founder of Ethereum Joseph Lubin and CEO of Ripple Brad Garlinghouse, they gave statements regarding the current token sale trend. The Ethereum co-founder stated following:

High-quality projects, but there have been a lot of copycat projects where people copy all the same materials (and) don’t intend to deliver any value to the people buying the tokens

These fraudulent token sales have also caught the attention of the Chinese government. In a quick response, Chinese regulators decided to effectively ban any ICOs and token sales in China until the government implements proper regulations. Lubin stated following regarding the Chinese ICO ban:

With China’s political approach to things, and with the fraud that was rampant there, it made a lot of sense for them to pause things a little bit and get a better, deeper understanding of the ecosystem, and scare potential fraud perpetrators

Token sales are also a very important component in order to drive innovation in the cryptocurrency and tech community according to analysts. Garlinghouse stated following:

There are a lot of really fabulous things that get done with digital assets and blockchain technologies to reduce friction, to reduce costs, and enable things that weren’t possible before. I think instead of focusing on those, we’re distracted by what’s going on in this gray area

More Regulations?

China isn’t the only government that took a stance on ICOs. The South Korean government has also moved on banning token sales until further notice. Experts believe that more governments worldwide are going to implement and enforce regulations for token sales, in order to protect consumers and investors from scams. US and UK regulators are currently observing the ICOs markets before they decide to implement regulations.  Many cryptocurrency community members believe that more regulations might hinder and potentially even damage the progress of bitcoin and blockchain technology development in the future.

What are your thoughts on fraudulent token sales? Do you think that governments should implement more regulations in order to protect investors from ICO scams? Let us know in the comments below!

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