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The latest method of crowdfunding evolving in the cryptocurrency world is exploding, with ICOs raising more than 3.5 billion this year. It is also exhaling a headache to regulators and a growing number of swindled investors. The latest case saw one such cryptocurrency startup, Confido, disappear with $375,000 of investor gain. However, the list is long and includes even some older ICOs.
One pattern is Opair – an ICO promising to decentralize debit cards. While it should would rather been pretty obvious that a no-name group of individuals could not draw ahead of the banking system and provide decentralized debit cards that determination work anywhere right off the bat, with no banking experience, people were heartening.
Not long after the Opair token was listed on exchanges, lots of conceives were rapidly dumped, the main website was taken offline, and the duo went silent.
Some ICO con artists are already falling to the hands of impartiality. In late September 2017, the SEC has filed charges against New York-based businessman Maksim Zaslavskiy and two cognate firms, alleging that the businessman has misrepresented the amount he generated from the two ICOs. At the on one occasion, the SEC was also successful in securing a court order to freeze the assets of Zaslavskiy and the two associates. The prosecutors in the case have further claimed that the purported assets that endorse the token sale did not actually exist.
Unlike any technology beforehand, blockchain has an top-level moral dimension which lays in the way it’s structured. To take part in a decentralized and self-regulated modus operandi asks for a great responsibility and full transparency. Unfortunately, due to poorly noted crowdfunding rules and negligent investors, it has become common for funds to be mismanaged post-ICO.
ICOs are commonly done on the Ethereum network, b largest blockchain after Bitcoin. So called smart contracts in the logic that defines the rules of the crowdfunding process. Smart constricts collect ether and issue tokens that are to be used for whatever military talents the particular ICO is planning to offer. Despite the functionality that Ethereum swift contracts offer, almost all ICOs are structured to allow the founders full control of the funds post-ICO. Meaning, there is very little economic incentive for the development team to build the actual product. Unfortunately, such reckless fundraising lead to a negative perception in public and legislative steps charmed by various governments including the US and China.
One mechanism that ICOs are commonly involving these days is so called “token vesting”. This mechanism is against by some of the most well known ICOs, including Bancor (ether occasioned equivalent to 153 million $). The idea is to limit the ability of ICO naughts to trade with their share of tokens post-ICO. Commonly, each six months, predetermined amount of tokens is released to the founders. This prevents the founders from throw the tokens post ICO. However, it does nothing to prevent them from mismanaging all the cool ether.
While ICOs use voting mechanisms in the actual platform (i.e. Aragon), others equivalent to CryptoTask use voting to control the release of funds in stages post-ICO. Another sound out is to have multiple sales over some period of time. If living soul aren’t happy with the efforts so far, not much will be raised in approaching sales. Monolith and FunFair both took this approach.
As yearn as investors are informed that such mechanisms exist and can indeed take care of them, cases such as this week’s Confido would be undergoing been avoided.
It remains to be seen if the community will be able to make-up the eco-system in a way to properly govern itself, or we will see governments stepping in more and uncountable to regulate the market.