What is a cryptocurrency airdrop?

What is a cryptocurrency airdrop?

What is a crypto airdrop?

A​ ​crypto airdrop​ ​is​ ​when​ ​a​ ​blockchain project distribute​s ​free​ ​tokens or​ ​coins ​to​ ​the​ crypto ​community. To​ ​be​ ​a​ ​recipient​ ​of​ ​an​ crypto ​airdrop often​ ​the​ ​only​ ​requirement​ ​is​ ​that​ ​you​ ​have​ ​coins from the relevant blockchain stored​ ​in​ ​your​ ​wallet. Examples of this format of airdrops are Byteball, Stellar lumens and OmiseGo. These airdrops required you to proof you were the owner of Bitcoins or Ethereums at a certain time ( snapshot) of the blockchain.

The​ ​format​ ​of​ ​these​ crypto ​giveaways​ ​is​ ​usually​ ​like​ ​this:​ ​At​ ​a​ ​pre-announced​ ​time​ ​the​ ​project​ ​behind the​ ​event​ ​will​ ​take​ ​a​ ​”snapshot” ​of​ ​the​ ​blockchain,​ ​​ anyone​ ​holding​ ​Ethereum or Bitcoin​ ​at​ ​that​ ​point​ ​will​ ​receive​ ​a certain number​ ​of​ ​free​ ​e-tokens.​ ​This can also be done on other blockchains, but Ethereum and Bitcoin are the most used for this airdrop format.

Other (often smaller) airdrops require social media posts or you need to contact a member of the team on the Bitcointalk forum. This form is gaining more popularity since September 2017. It's currently a hype to just fill in a google form with your email, telegram, twitter & wallet address to get free tokens. This format is often used for new crypto projects that are using airdrops as a marketing campaign. Another possible way to get free e-coins is a faucet. This means you get a small amount of free crypto for a longer period of time. Some wallets, crypto casino's or crypto promotion sites run this type of airdrop.

You might wonder, why would anybody give away free cryptocurrency?
                                   I have wondered the same and my thoughts on this are the following;

To offer coins for free the people are the product. With doing an airdrop the project creates awareness about their ICO or token. It brings people to the project that otherwise would not have owned or heard about it. It could lead to token price appreciation, since people value a token they own higher then a token they don't own. This is called the endowment effect: "In psychology and behavioral economics, the endowment effect (also known as divestiture aversion and related to the mere ownership effect in social psychology) is the hypothesis that people ascribe more value to things merely because they own them." In addition to that I think people are more likely to buy a token that they previously owned or still own, since they are already familiar with it.

A crypto airdrop would create a community/network of people who own the tokens. If you would list the token distribution after an ICO in a pie graph, a large part of the pie is still owned by the Dev's or project. Another large part is owned by people who joined a pre-sale. And a reasonable part is owned by people who invested in the ICO. An airdrop adds a extra slice to the pie and that slice will have the most people in it. Decred still shows a pie-graph like this example on their homepage

An crypto airdrop also plants a seed. When you look at coinmarketcap you will see a list of thousand coins. Just on page one you can see 100 coins listed. However if you have or had a coin that name is still in your brain. The seed is planted and whenever you check coinmarketcap and scroll down, the name of the free e-Coin will jump out and people will check how it is doing. If they see an article that the free e-Token is doing well or bad, they are more likely to click it if they own it or previously have owned it. It's just like advertising!

Aren't there free e-Tokens worthless?

NO they are not! Byteball is distributing airdrops to Bitcoin holders every month. The price of Byteball surged to over $900 per Byteball in mid july 2017. OmiseGo gave away free OMG tokens to Ethereum Holders, the price of OMG tokens surged to $ 12 in September 2017. Most recent eBTC airdropped 2500 eBTC tokens per applicant, on day 1 of hitting the exchange the price rose to $0.80 cents per token, which means the airdrop was worth 2000$ ! The only requirement for this airdrop was to sign up with your email and wallet address. The easiest $2000 I ever made!

Of course the airdrops I mention above are the ones that stand out. Most of the crypto airdrops I apply to are worth between 1-50$. However this is all free money. You can either sell these tokens to collect more Ethereum & Bitcoin, or you hold them and hope for a price surge.

Article Produced By
Pokernomad

https://steemit.com/free/@pokernomad/what-is-a-cryptocurrency-airdrop

What Initial Coin Offerings Are, and Why VC Firms Care

What Initial Coin Offerings Are, and Why VC Firms Care

The venture capital industry is beginning to take a good, hard look

at a new financial instrument coming out of the bitcoin community — Initial Coin Offerings, or ICOs. Also known as “token sales,” this new fundraising phenomenon is being fueled by a convergence of blockchain technology, new wealth, clever entrepreneurs, and crypto-investors who are backing blockchain-fueled ideas. ICOs present both benefits and disadvantages, as well as threats and opportunities, to the traditional venture capital business model.

Here’s how an ICO typically works: A new cryptocurrency is created on a protocol such as Counterparty, Ethereum, or Openledger, and a value is arbitrarily determined by the startup team behind the ICO based on what they think the network is worth at its current stage. Then, via price dynamics determined by market supply and demand, the value is settled on by the network of participants, rather than by a central authority or government.

Venture capitalists, who generally have been standoffish to the ICO phenomenon, are now becoming more interested in it for a number of reasons. One is profits — cryptocurrency investors made some massive returns in 2016, with cryptocurrencies from Blockchain startups Monero and NEM both seeing 2,000% increases in value. For example, the cryptocurrency used for the Ethereum network, called Ether, saw its value double in just a few days in March 2017. Yes, in three days, people who invested in Ether doubled their investment. Those investors can opt to cash out to a fiat-backed currency, or wait for the cryptocurrency to continue to rise (or fall). Volatility is a two-way street. While the price of Ether has been rising, Bitcoin has dropped 20% to $1,000 dollars from a record $1,290 on March 3, 2017.

The second reason VCs are becoming more interested in ICOs is because of the liquidity of cryptocurrencies. Rather than tying up vast amounts of funds in a unicorn startup and waiting for the long play — an IPO or an acquisition — investors can see gains more quickly, and can pull profits out more easily, via ICOs. They simply need to convert their cryptocurrency profits into Bitcoin or Ether on any of the cryptocurrency exchanges that carry it, and then it’s easily converted to fiat currency via online services such as Coinsbank or Coinbase.

What traditional investors don’t like about any of this is the regulatory uncertainty; the high valuations and over-capitalization; the lack of control over financials, strategy, and operations; and the lack of business use-cases. And like any industry, the ICO arena has had its fair share of outright scams, pump and dumps, and blatant Ponzi schemes. However, much of the criminal activity is now being mitigated by self-organized, crowdsourced due diligence in the community, as well as by external parties such as Smith and Crown, a research group focused on cryptofinance, and ICO Rating, a ratings agency that issues independent analytical research on blockchain-based companies. At least one VC firm is moving into cryptocurrencies. Blockchain Capital is set to raise its third fund via a digital token offering in the first-ever liquidity-enhanced venture capital fund (where people can invest without locking their money up for years on end) via a digital token called BCAP.

ICOs are the Wild West of financing — they sit in a grey zone where the U.S. Securities and Exchange Commission (SEC) and many other regulatory bodies are still investigating them. The main problem is, though, that most ICO’s don’t actually offer equity in start-up ventures; instead, they only offer discounts on cryptocurrencies before they hit the exchanges. Therefore, they don’t fit into the current definition of a security, and are technically outside of traditional legal frameworks. Secondly, they are global instruments — not national ones — and they are funded using bitcoin, ether and other cryptocurrencies that are not controlled by any central authority or bank. Anyone can invest, and they can even do so pseudo-anonymously (it’s not impossible to find out who people are, but it’s not easy, either). Currently, there’s no Anti-Money Laundering (AML) law or Know Your Customer (KYC) framework, though some companies are working on that. One example is Tokenmarket, a marketplace for tokens, digital assets and blockchain-based investing, that has teamed up with the Stock Market of Gibraltar to offer KYC- and AML-compliant ICOs.

Detractors of these new funding schemes scream for structure and protection, point out the scams, demand more control, and say that without equity, investors don’t have enough skin in the game. Meanwhile, proponents retort that there’s a real need for freedom to invest outside the accredited system, which sees the wealthy getting wealthier. They argue that the door needs to close on the domination of Sand Hill Road in Silicon Valley and other VCs and investors in the tech industry who have been making massive returns on the backs of entrepreneurs for far too long.

How Blockchain Works

For blockchain startups, ICOs are a win-win — they allow startups to raise funds without having equity stakeholders breathing down their necks on spending, prioritizing financial returns over the general good of the product or service itself. And there are many in the blockchain community who feel that ICOs are a long-awaited solution for non-profit foundations that want to build open-source software to raise capital. Non-profits usually hold about 10-20% of the total cryptocurrency they issue; as Ethereum did in their ICO in 2014, with 20% going to the development fund and the remaining going to the Ethereum Foundation. This is so they have a vested interest in building more value, as well as having reserves for growth in the future. (As of March 2017, the market capitalization of the ether token was more than $4 billion.)

The market cap for bitcoin is now close to $20 billion, and half of that is allegedly owned by less than one thousand people, who are called “bitcoin whales.” Many of them are in China, but there are also hedge funds and bitcoin investment funds who hold massive amounts of bitcoin. Most made their money early on by buying or mining bitcoin when it was still under $10 (in the early days of 2011-2013). It’s now worth approximately $1,120 per bitcoin. These “bitcoin whales” are currently the ones who make or break many of the ICOs. Some of the enormous profits they have made in bitcoin are being channeled back into innovation, as many of them seek to diversify holdings, as well as support the ecosystem in general.

More than $270 million has been raised in ICOs since 2013, according to Smith and Crown (not including the $150 million raised in The DAO scandal, which was returned to investors). Since 2013, there’s been about $2 billion invested in blockchain and bitcoin startups from the VC community. ICOs are becoming more and more popular for startups seeking to get out of self-funding, bootstrapping starvation mode and avoid being locked in by venture capitalists, watching their own equity drown in a sea of financing rounds. ICOs are dominating the overall crowdfunding charts in terms of funds raised, with half of the top 20 raises coming from the crypto-community. In a recent conversation, MIT scientist and author John Clippinger described the vast potential of this new movement to me

as such:

One way of thinking about a crypto-asset is as a security in a startup, which begins with a $10 million valuation and becomes a $10 billion dollar entity. Instead of stock splits, the founding crypto-asset gets denominated in smaller and smaller units; in this case 1,000 to one. Here, everyone in the network is an equity holder who has an incentive to increase the value of the network. All of this depends upon how well the initial crypto-asset and its governance contract are designed and protected. In this instance, good governance, e.g. oversight, yields predictability, security, and effectiveness, which in turn creates value for all token holders.

Just as venture capitalists are taking a hard look at this new phenomenon, so should we all. It’s not just about the money that can be made; it’s also about funding blockchain projects and, in the near future, other startups and even networks, as Clippinger noted. We now have a way to easily fund open source software, housed under foundations rather than corporations, that can truly drive faster innovation. Right now, blockchain technology is at the stage where the internet was in 1992, and it’s opening up a wealth of new possibilities that have the promise to add value to numerous industries, including finance, health, education, music, art, government, and more.

Article Produced By
Richard Kastelein

Richard Kastelein is the publisher of Blockchain News, Founder of Blockchain Partners and interim Chief Marketing Officer of Humaniq, a blockchain startup focusing on banking for the bankless. He’s also on the steering committee of the Blockchain Ecosystem Network and is organizing the CryptoFinancing 2017 event.

https://hbr.org/2017/03/what-initial-coin-offerings-are-and-why-vc-firms-care

Crypto Firms Turn to Airdrops to Boost Blockchain Projects

Crypto Firms Turn to "Airdrops" to Boost Blockchain Projects

Nothing in life is free. Or is it?

A blockchain project called Dfinity last week announced it will give away $35 million worth of digital tokens. The recipients can wait to use the tokens on Dfinity’s network—which the company is touting as a “Cloud 3.0″—or, as many will do, they can slip them to speculators and cash out in real money.

Welcome to the age of “airdrops,” where entrepreneurs disperse crypto coins to prospective users for no cost. The tactic has come to be seen as the most viable way for blockchain projects to get off the ground. They’re like the Initial Coin Offerings that were all the rage last year but, instead of selling digital tokens, the project’s masterminds simply give them away. In addition to Dfinity, there are murmurs the journalism-on-a-blockchain project Civil and Everipedia, a would-be competitor to Wikipedia, will soon conduct airdrops of their own.

It’s not hard to see the strategy here. In the wake of the fraud-a-palooza that accompanied many of last year’s ICOs, regulators are set to pounce on any outfit that starts selling tokens to the good people of the Internet. That’s why just giving the tokens away feels like a safer strategy. While it doesn’t bring the same cash windfall, it creates an opportunity to sell reserve tokens on the secondary market. Of equal importance, airdrops offer a way for blockchain projects to distribute tokens far and wide, and build up the network effects that are essential for success.

A harder question is whether the airdrops are legal. The answer, according to attorneys familiar with securities law, can be summed up as “not really.” Under the first prong of the legal test for determining whether something is a security (and must be registered with the SEC), regulators will look at whether there has been an investment of money—a term that is much broader than just cash.

“There’s a line of cases saying it’s not limited to money. It can be something of value, or goods or services. From the SEC’s perspective, the [token recipient] might be giving the issuer something of value by becoming part of network,” said Sam Waldon, an attorney with the firm Proskauer. And according to Blake Estes of Alston & Bird, the SEC has frowned in the past on companies’ attempts to juice investor interest through giveaways. In 1999, for instance, the agency cracked down on firms offering “free stock” as a way to attract investors to Internet ventures. The SEC itself hasn’t specifically addressed airdrops but, based on recent comments from the agency’s Chairman Jay Clayton, any U.S. venture dabbling in tokens had better tread carefully.

All of this puts blockchain projects in a bind: If they can’t sell or even give away their tokens, how can they get any traction? In the case of Dfinity, the company found a workaround by firmly excluding U.S. citizens from its airdrop. But excluding Americans may not be a viable option for the likes of Civil, whose blockchain journalism project is focused squarely on U.S. towns and cities. The project now faces a dilemma: Tokens are essential to its success and, for now, the group has no easy way to distribute those tokens to its target audience.

The upshot is the SEC’s recent crackdown is helping to shield gullible investors from token scams, but it could also hurt U.S. blockchain innovation if legitimate projects have no way of getting off the ground. Here’s hoping the agency’s gnomes are hard at work creating a safe harbor of sorts that will let U.S. companies and consumers join the age of airdrops. Or else that precious cargo will only end up in foreign hands.

Article Produced By
fortune

A version of this article originally appeared in the The Ledger,

http://fortune.com/2018/06/04/blockchain-airdrops/

SEC Chairman Jay Clayton Says Bitcoin Not a Security, Most ICOs Likely Are

SEC Chairman Jay Clayton Says Bitcoin Not a Security, Most ICOs Likely Are

 

 

Jay Clayton, the chair of the US Securities and Exchange Commission (SEC),

believes that Bitcoin (BTC) is not a security since it acts as a replacement for sovereign currencies, CNBC reports today, June 6. Clayton, when speaking about the “incredible promise” of distributed ledger technologies driving efficiencies in markets, clarified during today’s CNBC interview his thoughts on cryptocurrencies that are “replacements for

sovereign currencies:”

“Replace the dollar, the yen, the euro with Bitcoin. That type of currency is not a security.”

While Clayton did not comment on specific assets besides Bitcoin about their status as securities, he went on to explain that what he considers to be securities are tokens that act as

digital assets:

“Where I give you my money and you go off and make a venture […] and in return for me giving you my money, you say, ‘You know what, I’m going to give you a return.’ That is a security, and we regulate that. We regulate the offering of that security, and we regulate the trading of that security.”

When asked to make clear his statement on whether Initial Coin Offerings (ICO) are securities, Clayton told the interviewers, CNBC’s Bob Pisani, “Bob, I just did.” Clayton added that the SEC won’t support changing the definition of a security to support the ICO community, as they are not “going to do any violence to the traditional definition of a security which has worked well for a long time.”

The SEC chair had previously praised distributed ledger tech, blockchain as an example, during February’s SEC and Commodity Futures Trading Commission (CFTC) cryptocurrency hearing. At the time, Clayton had noted that every ICO that the SEC had seen so far would be considered a security. Altcoins Ethereum (ETH) and Ripple (XRP) have come up in the cryptocurrency security question, with Joseph Lubin of Ethereum emphatically denying that ETH was ever a security, and Ripple similarly rejecting a security classification. Ripple is now facing a class action lawsuit from a disgruntled investor claiming that the sale of XRP is the sale of an unregistered security, with a former SEC chair recently appointed to represent Ripple in court.

Article Produced By
Molly Jane Zuckerman
Molly Jane is a Russian Literature major from California with a background in writing. She joins Cointelegraph after working as a freelance journalist and blogger..

https://cointelegraph.com/news/sec-chairman-jay-clayton-says-bitcoin-not-a-security-most-icos-likely-are

Top 5 Airdrops You Must Participate of in June 2018

Top 5 Airdrops You Must Participate of in June 2018

June comes full of interesting Airdrops that is worth to participate in.

But which are those projects that are offering this possibility? If you want to be part of them, we will tell you everything in this article.

Morpheus Network (MORPH)

Morpheus.Network will be one of those projects that will be giving tokens to the community. So as to participate, the company explains that they will ne giving away MORPH tokens to MORPH token holders. But they explain: ‘the more MORPH tokens you hold and the longer you hold them, the more MORPH tokens you will earn during the airdrop.’ There will be 1,800,000 MORPH tokens airdropped between June 2018 and July 2016. This June, 360,000 tokens will be given to the community. The longer you hold them, the more bonuses there will be. If you move the tokens between airdrops, then you will not be eligible to receive an additional 5% bonus. So as to participate it is necessary to be registered and inform the wallet address. Additionally, it is a must to keep the MORPH tokens in the registered wallet.

Cashaa (CAS)

The second airdrop that we are mentioning now is Cashaa, that calls itself the ‘next generation banking platform.’ It will be distributing 192 million CAS that were not sold during the ICO. The airdrop will take place on June the 5th based on Proof of Stake (PoS). CAS is an utility token that will work on the Cashaa product that is going to be released during the last quarter of 2018. Those who have been staking CAS tokens will be rewarded with these tokens. Any CAS holders who will be able to prove their stake will be awarded tokens in the ratio of 0.7 CAS for each 1 CAS in their ERC 20 address. The information provided must be based on the balance as on the 5th of June, 12 noon BST.

STORM Token (STORM)

Another interesting airdrop that will take place this month is the one that STORM Token is planning. In a blog post uploaded by the company, they explain that they will be carrying out an airdrop with the unsold tokens. In this way, they will be rewarding both earlier investors and the most active supporters. All Storm Players who signed up with a STORM Wallet Address by December the 7th, download Storm Play and set up a STORM wallet address in the app, will be eligible for the airdrop. STORM Token crowdsale participants that have STORM Tokens in the same original wallet address will also be eligible. It is important to mention that if the STORM Tokens have been transferred out of the original wallet address, then it will not be possible to participate of the STORM drop.

The next airdrops are going to take place on June and December the 7th this year and the next one.

Metro (MTR)

The fourth airdrop will be the one that the decentralized exchange Metro is promoting. Metro is a blockchain based decentralized autonomous corporation (DAC) that provides cross-chain cryptocurrency exchange services to clients and crypto income for stakeholders. The airdrop will take place on June the 22nd and 10% of the total supply will be distributed to NXT holders on start. 100,000,000 NXT tokens are the ones that will be distributed.

So as to participate in the airdrop it will be important to download the NXT client and create a wallet. Then, buy NXT tokens on any exchange, and place the NXT tokens in the wallet and wait for the snapshot block. For every 10 NXT on your wallet you receive 1 MTR with the same passphrase on Metro blockchain. The snapshot block number is 1894000.

Pundi X (NPXS)

The last important airdrop this month is related to Pundi X. Pundi X is unlocking 7.316% of the token balance for the NPXS holders every single month. Those who hold 1 lakh NPXS will get 7136 tokens. All of the Pundi X token holders are eligible for airdrop till January 2021. Pundi X aims to empower blockchain developers and token holders to sell cryptocurrency and services on any physical stores in the world.

Article Produced By
Carlos Terenzi
          of
Cryptocurrency News

https://usethebitcoin.com/top-5-airdrops-you-must-participate-of-in-june-2018/

Covering the technology, people, and culture of the cryptocurrency and blockchain world

Covering the technology, people, and culture of the cryptocurrency and blockchain world

 Why most ICOs will fail

This blank white paper still has more detail than most

because it has the name of an actual person on it  Almost every day, I get an email about a hot new initial coin offering (ICO). These come from tech companies selling their future services. In my stock portfolio, I’m happy to find anything that can give me 10 percent return over the course of a year. These days you can measure a crypto portfolio in 2x, 3x, or even 10x (as in, 1,000 percent). But lately, all this good news has been bothering me.

The financial magic works like this: imagine if someone builds a casino in your neighborhood and they fund the entire operation by selling their poker chips ahead of time. With that money, they will pay for every slot machine, every bottle of liquor, every plate in the dining room, and the salaries of every manager and construction worker involved. Would you go for it? Most of us would say no, and even most gamblers would just rather buy some chips when they actually go to the casino.  

Now imagine that casino is being built by Terry Benedict, the fictional casino owner from Ocean’s 11. Benedict offers you a deal: they’re selling the chips now, but they are only ever going to have 1 million of them total. In the future, the casino’s customers will have to buy chips from you. Benedict has created an artificial supply problem. They even look at Benedict’s past success (he got robbed and got his money back with interest—that’s security!) and his team on this project and they go all in. Even non-gamblers (“investors”) are buying chips and holding on to them. They’re placing bets before the casino is ever built. Heck, why go to a casino when you could stay home and watch your chips go up in value?

That’s one of the many problems facing tech companies that do an initial coin offering before they even build their businesses. And just like casinos, these token-operated tech companies have no hope of every getting any money from businesses, governments, or banks. To unravel this $353 billion problem facing the blockchain tech world, I caught up with Brendan Taylor and Patrick Manasse at MonetaGo. They run an “enterprise focused” (read: businesses, governments, and banks) blockchain solutions company down the street from Modern Consensus’ decentralized office in New York.

Modern Consensus:
No matter how exciting a blockchain solution is, every ICO seems to suffer from the same flaw.

Brendan Taylor: “Most people would prefer to use a service with a known and stable price so they can make a decision on the cost rather than rely on the open market. A lot of ICOs that are supposedly falling within the law are classified as utility tokens, meaning they grant the right to use the future service of that network.”

Exactly. If you ran a business and you found that you save money on shipping by using a token-operated tech company, that would only drive up the price of that token and you’d lose your solution.

BT: “ICOs attract speculators. The price of the service is then driven by speculation instead of the fundamental value of the underlying service itself. That is a critical disconnect between what the ICO is intended to achieve and what every single ICO actually achieves.”

What determines a successful ICO?

BT: “A successfully ICO only mean the raise is successful, not that the company is successful. That’s really determined by only two things: 1) Length of the marketing period—the longer the marketing period the higher the chance of success; 2) Price of various digital assets on the day of the launch.”

Whoa. It’s the opposite of what a startup is supposed to do.

Patrick Manasse: “In a lot of cases, they’re not even building out a prototype. It’s normal in the startup space to conceive a product, work toward a ‘minimum viable product,’ and then work toward the desired product. Even then, you improve it with everything you learn. Google, Amazon, Facebook—they get better every day. Landscapes change. A change in a regulation can change how your product functions. A lot of the ICO companies are putting together a white paper and really trying to evangelize the notion that there’s a problem that only they will be able to solve without doing the homework of whether the approach they’re taking will even solve that problem.”

Even good products can suffer from getting pigeonholed in by their ICO.

PM: “An ICO is primarily a way of raising funds. Putting aside the legality about it, they’re using it to raise money for companies. Regardless of what they are trying to do, we believe there are a number of reasons why you don’t want to use this type of infrastructure and tokenization.”

But even knowing that, there are a lot of smart people digging in to ICOs.

BT: “The driver for doing an ICO is never in line with the service they’re offering. They are a regulatory grey area. You don’t have to comply with getting accredited investors. It’s an easy and quick way of accessing money in a space where there is plenty of spare cash. People who made a lot of money in bitcoin and ethereum are looking for places to store that cash. On the other side of the coin, the people trying to raise cash see ICOs as a way of getting their funds. To stay in that regulatory grey area, you have to issue utility tokens. That token equals the right to use whatever service that company is offering in a tokenized system. A tokenized system has plenty of drawbacks.”

Even if the token is perfect, it still locks out the majority of the market because businesses and governments can’t use them.

BT: “The only current legal path is by utility token. You are selling the right to use the future service. Ultimately, the tokens will have to be used in a network. When you’re talking about an enterprise solution, none of our clients are authorized to use any tokenized system. So right from the getgo, our clients cannot use a system that uses a token.”

PM: “You really can’t take this approach. If you’re trying to do anything in enterprise, you cannot use this type of architecture. If we decided to do an ICO tomorrow, we would be making it impossible to do long term or near term.”

And when you say “enterprise,” you mean everything that isn’t for a consumer. So businesses, schools, governments, banks, etc.

BT: “Ninety-nine percent of all companies doing an ICO will never be in an enterprise space. Maybe Ripple. They’re trying really hard to make that model work.”

Your team never did an ICO, but you are currently running a blockchain in the enterprise space?

BT: “The network we launched in India is to mitigate fraud. First of all, our network is not public. It is private permissioned. All participants that are permissioned do see everyone else’s data. The information we are sharing on this network needs to be known by all participants. We are trying to stop duplicate financing. The only way to do that is to share that financing to the rest of the industry. But nobody wants to share who their clients are, what their volume is. How do you get around sharing information without sharing information? Traditionally, you trust a third party. The alternative is to obscure that information or create a digital fingerprint of it. We use the same SHA-256 hashing algorithm. That fingerprint identifies an invoice that is not on our network. Someone would have to find the invoice itself to give you the details. And they will see the same fingerprint registered by the financier. So the real information of the invoice is only held by the customer and the financier.”

Should people who have already bought into ICOs be worried?

PM: “The SEC has been busting people for straight up fraud. They recently sent out a swooping set of letters to many of the companies that touted as premiere ICOs, mainly because they are very clearly doing something illegal. What we’ve learned in the last few years is that there is a reason why they don’t want any type of tokenization. There are data issues with having any kind of open network. If you’re a bank, you don’t want to publish every single one of your transactions. Really you don’t want to broadcast that information. From an enterprise side, who is going to be actually using an open network?”

So an ICO could put a good idea in a bad spot?

PM: “There are really only a handful of companies trying to think long term. The arc that we’ve seen is that three years ago, it was just early adopters, a few budding companies. Last year, it was a lot of financial institutions. This year, it was a 500-to-1 ratio of startup companies trying to sell ICOs to a real enterprise company. People have come up with this notion that this is the way to raise a bunch of money very quickly. The long-term prospects of that company are not looking good. Now they are locked into an infrastructure and processes that have a number of issues. It does make for a very crowded marketplace. It makes for a lot of noise. So, we’ll see who’s around in the next few years.”

I still do think that blockchain is the future. I just think people are on the wrong wave to the future with most ICOs. Startups need to make mistakes to grow.

BT: “We have never tried to be a blockchain. We rely on hyperledger and we provide applications that live on these networks. We set the up and maintain them for the operators and users of them.”

The problem with every ICO now is they do one of two things: they solve a problem that no one has or they provide a solution that only works if everyone uses their system.

BT: “The problem we initially had was we tried to ‘boil the ocean’ we took on an impossible task and made everything along the way more complicated. That was never very successful because they were too untargeted. Now we start with the problem and solution and tell them how we use blockchain on the back end.”

PM: “Our clients were having a problem with fraud. They wanted to find a solution to make it possible to prevent that. The technology that makes that possible is interesting, but it’s in the background. We’re solutions first.”

So yours worked the second you plugged in your servers?

PM: “From Day One, our clients were able to see if they had their invoicing right. Nobody will know the details of the financing—the name of the company or anything. ou know the receipt of the finances. And no single party has control over this network. It’s not our company, it’s not one client. If you’re permissioned,you can join the network. You can derisk your entire portfolio and provide lending rates and financing rates. We’re not trying to reinvent the wheel. We’re trying to provide a simple solution to customers facing a serious problem.”

And Monetago works no matter what accounting software your customers want to use or whatever workflow they have in house?

PM: “Yep. Everyone who is permissioned into the system can see if a receivable has already been financed.”

Should we be concerned about these bloated ICOs that have all our money? In the Economist last week I saw a Silicon Valley phrase for the first time, “Startups perish more often from indigestion than starvation”

PM: “That is sometimes true. There are companies that get a lot of visibility. Overfunding can impact the trajectory of future financing. That is a tightrope you need to walk. or every company that is funded, there are lots of companies that are not. But most people never hear of the companies that starve.”

Is there some portfolio theory here? Getting involved in a lot of ICOs means you cast a wide net.

PM: “In a lot of cases, an investor is really looking for that one success. They invest in 10 startups a year or 100 a year. They’re hoping that one or two are ultra-successful. But your traditional business training comes into play: Team, company, and structure. Market and solution. All the way you would judge a company.”

What about these venture capitalists who are leaving their funds and going all crypto?

BT: “Sometimes you hear of some high-flying investor who has spun off his own crypto fund, but their success is still only driven by the frenzy. A lot of the actual successes are based on speculative valuations. So the fact that someone does create a new coin and the valuation goes up and they cash out—that’s a success for them. Speculation, not real results. You’ll see that die out as these companies fold.”

If you advised a project today would you talk them out of doing an ICO?

PM: “There’s temptation to raise that easy money. But if you understand the space and understand the systems, you don’t want to go for an ICO. We wouldn’t do one because it’s the wrong choice.”

Article Produced By

Brendan Sullivan

Brendan Sullivan is a writer, producer, and author of the memoir Rivington Was Ours: Lady Gaga, the Lower East Side, and the Prime of Our Lives.

Disclosure: he owns cryptocurrencies.
https://modernconsensus.com/people/innovators/why-most-icos-will-fail-monetago/

Airdrops: Key Themes and Design Considerations

Airdrops: Key Themes and Design Considerations

A Tool for Network Adoption and Governance

 

If you’ve ever opened your crypto wallet and found tokens

that you didn’t knowingly purchase or accept, you’ve probably been the recipient of an airdrop — an event where free tokens or crypto assets are distributed to a group of prospective users. Why would the leaders of a project choose to distribute tokens for free? The thinking is generally that it is a tool for seeding network adoption — by giving people tokens for your protocol, it’s more likely that they will both learn about your protocol and participate in the network. Another reason is to achieve greater initial decentralization of token holders by making sure they don’t just start in the hands of the project team and folks who participated in a token sale.

While airdrops may seem on the surface to be a simple marketing tactic to boost awareness of a new cryptocurrency, they’re actually a complex tool with the potential to fuel more than just brand recognition. Looking ahead, we’ll likely see airdrops go through multiple evolutions as users play around with different elements and uses for them. There is a vast design space around airdrops, hard forks, and other methods of token distribution, which have only just begun to be explored. To try to get our heads around this topic, in December, IDEO CoLab and CoinList hosted 12 practitioners in the crypto asset field — including founders, engineers, designers, and investors — to discuss airdrops. What follows is a synthesis of some of the themes and design provocations surfaced in the discussion.

Key Themes

Airdrops as a way to bootstrap new networks and communities

Airdrops can enable easier and faster bootstrapping of new protocols and communities. Airdrops to large communities of existing token holders (e.g., ETH) can provide wide distribution and a new model for marketing to and acquiring users. Airdrops may also help narrow the gap between the distribution and usage of tokens, as compared to a token sale.

Questions:

  • How do you airdrop “fairly” and equitably, especially when it is easy to game if you know how the distribution will be done in advance?
  • How do you know who to airdrop to, and how much to airdrop to them?
  • How do you airdrop to future users of the platform, not just investors or speculators?

Potential to sidestep regulation

There is an assumption that giving away tokens BEFORE a market price has been established for them may enable a project to avoid many regulatory requirements of token sales. It is unclear whether this is actually the case, given precedents set by the SEC related to stock “giveaways” (see 1999 Wilmer Hale analysis), yet it is a frequently cited reason for pursuing airdrops as a distribution mechanism. [Update: some teams like Harbor and TokenSoft are rolling out products that explicitly take the stance that some or all airdrops will not be exempt from regulatory requirements.]

Questions:

  • How should issuers legally and financially account for airdrops? As a marketing expense? As a donation? Something else?
  • How might regulatory agencies (e.g., SEC, OFAC) view and respond to airdrops, especially as they increase in frequency.

Airdrops as a marketing interface and onboarding experience

 

For many airdrop recipients, receiving tokens may be their first exposure to that project. Currently, airdrops are done without any direct way for users to learn more about the project other than searching Google or Etherscan for the token’s name. This is a poor onboarding experience and one which has much room for improvement in terms of design.

 

Questions:

  • How do you communicate with the recipients of airdrops? Could airdrop transactions include an onboarding message and link to learn more in the Input Data field?
  • How should an airdrop’s onboarding experience be designed to reduce friction and optimize adoption and usage?
  • How might airdrops reimagine marketing and advertising?

Improve effectiveness of airdrops via better targeting

 

Airdrops to date have targeted all holders of an existing cryptocurrency (either BTC or ETH), but it may be more effective to target a subset of addresses based on their possession or use of other tokens. For example, when launching a token for machine learning experts, it might be more effective to target NMR holders, or more specifically those who have actively staked tokens in a Numerai competition. While the ethics are murky, targeting addresses that frequently interact with various gambling platforms may be a good way to seed adoption for a project like FunFair.

 

Questions:

  • How do you ascertain the ‘identities’ or ‘profiles’ of address holders to make better decisions on which users to airdrop tokens to?
  • What analyses can be performed to make better inferences for the purposes of targeting?

Incentives post-airdrop to use utility (or attach airdrop to usage)

 

Instead of giving out tokens and hoping recipients will engage, there could also be an incentive to use the tokens to earn the allocation (and/or a larger one). There was a lot of interest in this idea, which essentially amounts to an initial airdrop targeting a broad population with small amounts of a token, followed by a targeted airdrop with more tokens to those who actively engage with the platform after the initial airdrop. One framing of this is to think of the initial tokens as coupons, which could be “redeemed” for more value after a desired action is taken.

 

 

Questions:

  • How do you create airdrops incentives and/or contingencies based on user actions?
  • What is the range of post-airdrop incentive models that will exist?

 

Unintended consequences (e.g., tax liability) of airdrops

 

Airdropping tokens may create unwanted tax and legal liabilities for recipients (and issuers). There may be more unintended consequences, as airdrops are delivered to large exchanges, custodians, and margin traders. Modeling for how different actors in the network will respond as airdrops become more prevalent will be important to an airdrop’s design and its ability to deliver on its intent.

 

Questions:

  • What is the cost basis and tax liability of an airdrop to its recipient? What if that recipient is an exchange, custodian, or margin trader?
  • Will people value or feel differently about tokens that they get for free?

New airdrop models

As airdropping becomes more common, new models will emerge for different strategies. For example, Stellar has done multiple airdrops to bitcoin holders which required proactive proof of ownership, while OmiseGo did a passive airdrop to Ethereum addresses over a minimum threshold.

 

Experimental models surfaced:

  • Hard spoons: Copying the balance/UTXO set from an existing blockchain network and using it as the basis for token distribution for a new protocol. Basically, you’re copying the economic distribution of tokens on one network and using that as the starting point for a completely separate protocol that is quite distinct from a technical standpoint.
  • Continuous distribution models with “central bank” and monetary policy: Models where tokens are not entirely sold/allocated up front, but rather made available over time through an issuance scheme that is laid out in advance but not necessarily governed through a process like proof of work or proof of stake.
  • Contingent airdrops: In which receiving tokens is dependent upon the user taking a desired action. See #5 above.

Airdrops for inter-protocol governance

Airdrops could be an effective tool for dealing with governance decisions that affect holders of multiple tokens. The simplest version is doing a protocol merger/acquisition, whereby holders of tokens for one protocol are granted tokens on another protocol as a way of combining the communities. This can be done via agreement of project leads and respective stakeholders of each project, but could also be done in a fashion akin to a hostile takeover, where incentives are given by one project for the holders of another project’s tokens to burn their tokens or sabotage the target protocol. See Andy Bromberg’s “What The First Token Hostile Takeover Could Look Like” for more details. Also discussed was the possibility of building “poison pill” terms into smart contracts to proactively counter such attacks.

Questions:

  • How might airdrops lead to greater collaboration? Competition?
  • For what other corporate strategy and/or finance actions could airdrops be used?

While the initial conversation took place under Chatham House Rule, the following people consented to being recognized in this piece for their participation in the conversation: Andy Bromberg, Arianna Simpson, Dan Elitzer, Gavin McDermott, Ian Lee, Jay Freeman, Joe Gerber, Joey Krug, Joseph Poon, Richard Craib, and Tara Tan. No assumption should be made about any individual’s agreement or disagreement with any of the observations above.

Finally, given the pace at which everything in this industry moves, obviously there have been further developments since the initial conversation in December. One is airdrops targeting folks who may not already be crypto users, such as the experiments Numerai is doing to target data scientists on Kaggle and university students; Earn.com rolled out a product allowing airdrops to be offered to over 100,000 users; and Merkle airdrops are an interesting proposal to enable a simple claim process while reducing blockchain bloat. While it’s clear that airdrops are a powerful tool for network adoption and governance, we’ve only just begun to scratch the surface with how they can be most effectively deployed. Let’s keep experimenting!

Article Produced By
Dan Elitzer  ( in IDEO CoLab )

https://medium.com/ideo-colab/airdrops-key-themes-and-design-considerations-efadc8d5d471

The Price of Bitcoin Cratered in 2018. But Here’s Why ICOs and VC Funding to Crypto Is Breaking Records

The Price of Bitcoin Cratered in 2018. But Here's Why ICOs and VC Funding to Crypto Is Breaking Records

WAN CHAI, HONG KONG, HONG KONG ISLAND
A Bitcoin ATM machine in Wan Chai, Hong Kong.

The value of cryptocurrency poster child Bitcoin may be flagging heading into the second half of 2018, but excitement in the space only appears to be increasing—at least, when considering venture capital funding and initial coin offerings (ICOs) during the first half of 2018. Indeed—if 2017 was a windfall for Bitcoin owners, 2018 has so far been a nightmare. The cryptocurrency has shed roughly 50% in value since the new year and is now at about $7,400, far from its all-time high of $20,000 in December. Similarly, jobs listings related to Bitcoin and blockchain appear to have followed the ups and downs of the cryptocurrency’s price.

Amid the dark days for crypto enthusiasts, however, are signs that investors still believe that cryptocurrency trading will continue to grow, and are also betting on the future of its underlying technology—blockchain. Take venture capital funding that goes to early-stage, often highly risky, startups, as an example. Globally, venture investors poured in $964 million into blockchain or cryptocurrency-related startups in 2017. Now, not even half way through 2018, investors have already exceeded the prior year’s funding by plowing $1.4 billion into such startups.

Though cryptocurrency values have fallen 46% to $329 billion according to CoinMarketCap, venture capitalists such as David Pakman, a partner at Venrock, still think trading of such assets will rise in the long run. “There is so much institutional money waiting” for a properly regulated cryptocurrency exchange, said Pakman, whose firm struck a partnership recently with New York-based firm CoinFund, which helps entrepreneurs build startups using blockchain. “We’re not watching the price of the cryptocurrencies as a barometer of the health of the industry. We are wondering which projects will gain large market share, and what new problems they may solve.”

Much of those gains in venture capital funding have also been driven by investors who see promise in blockchain, a database held by multiple parties that updates in real time, says Nizar Tarhuni, associate director of research and analysis at PitchBook. Developers have looked into using blockchain to solve a host of problems, from tracking pork and diamonds to solving the refugee crisis. With increasing regulatory scrutiny on ICOs, which became popular in 2017 as a way for startups to raise funds more cheaply and quickly, some investors may also be looking instead to get into crypto by funding companies through more traditional means such as venture capital, says Andy Tang, managing director at Draper Dragon Fund.

“We see more investors investing in equity rather than tokens themselves. Because tokens are still a grey area in the U.S. Equities are not,” he said. That continued bullishness in the crypto space has led to the four largest venture capital deals in the industry yet, including a $133 million fundraise for Basis, a firm creating a coin with a set value, and $122 million to R3, an enterprise blockchain startup, according to PitchBook data. But here lies the paradox. Despite this increased regulatory scrutiny in nations such as the U.S. and China, fundraising from ICOs has only risen since last year.

The hot new thing of 2017, initial coin offerings were billed as a way to raise startup funding quickly, and cheaply—cutting out advisors and middlemen. But government officials have questioned issuers’ claims that some ICOs don’t involve equity stakes, and therefore are not subject to more onerous securities regulations. The U.S. Securities and Exchange Commission has recently cracked down on the space, while the Chinese government has sought to ban ICOs outright. Still, investors and ICO issuers have continued seemingly without concern in 2018. Investors have poured $9.2 billion year-to-date into ICOs, according to Coinschedule, into a total of 343 offerings so far. Notably, Coinschedule also includes pre-sales, such as that of secure messaging platform Telegram’s massive $1.7 billion raise. That dollar amount this year dwarfs what ICOs raised a year earlier: about $3.9 billion spread across 210 deals.

So who is investing in ICOs? Mostly investors outside of the U.S. and China, says Coinschedule CEO Alex Buelau, in countries with more ICO-friendly regulations. “Most ICOs now have a clause that you can’t be an American or a Chinese investor to be a part of this ICO,” he said. “So now ICOs are based out of Singapore, Estonia, Malta, or Gibraltar.” In some cases, governments, such as Venezuela, have even embraced cryptocurrency, with the country’s $735 million pre-sale of Petro coin, a digital currency pegged to the price of oil, now considered the second largest ICO of the year.

Less regulatory oversight though, may not always be a positive sign. Included in Coinschedule’s ICO figures may be fundraises by startups with shoddy track records, buoyed by investors who similarly, may not have enough experience to make such investment decisions. Meanwhile, the infrastructure to deal with hackers and scammers seeking to get a piece of ICO funds is still weak. During the anticipated $4 billion EOS ICO, which is set to conclude 7 p.m. Friday, some investors said they had fallen prey to phishing scams.

And there lies the flip side to the increasing funds moving into crypto. The bottom line for venture capitalists: Early stage companies are risky, and much of the dollars going in may never come out. “There’s high amounts of early stage speculation in cryptocurrency startups that could be really risky,” said Pakman. “And a bunch of those projects could never ship, or ship and end in failure.“

Article Produced By
The Ledger-Bitcoin

http://fortune.com/2018/06/01/bitcoin-price-ico-2018-record-billions/

 

As ICOs Get Compliant What Does That Mean for Airdrops?

As ICOs Get Compliant What Does That Mean for Airdrops?

ICOs Are Getting Compliant and Airdrops Will Have to Follow Suit

We’re approaching the halfway point of 2018 and so far over 340 ICOs have raised almost $9 billion between them. Even amidst concerns over regulation, scams, and hackers, those numbers are not to be sniffed at. In fact, while most people think of last year as the non-stop party for ICOs, 2017 saw just 210 of them raising under $4 billion in funds.

What gives? It seems that even with bearish market sentiment and the US SEC breathing fear into the hearts of blockchain startups, ICOs are still going strong. Of course, what happens after they raise the funds remains to be seen–as well as what direction legislation will take. So while many blockchain companies are still bullish on ICOs, others are finding themselves erring on the side of caution and evaluating their options. And as with everything surrounding this decidedly gray area, there’s some confusion as to what those options are.

What Are Compliant ICOs?

A compliant ICO, or STO (Security Token Offering), is regulated by the SEC from the start. There are four major paths open to a US blockchain company that wants to hold a regulated offering and they each have their pros and cons. One of the alternatives, for example, is a using an existing securities exemption called a Reg A+. You can raise up to $50 million and open your offer to anyone over the age of 18. The catch? You need two years of audited financials and significant time and money.

A Reg CF is an easier and cheaper way of raising funds, but you’re significantly limited to how much you can raise (less than $2 million). Fintech Merchant Accounts helps blockchain companies to hold compliant ICOs. CEO Edward Corona says, “keep in mind that they [compliant ICOs] still do not provide business owners the freedom and control of an unregulated ICO.” Right. But then, of course, they also don’t provide business owners with the possibility of ending up behind bars.

Another major advantage of holding a compliant ICO is that you can solicit your deal and advertise it anywhere, making it far easier to raise awareness for your token sale. With Facebook, Twitter, Google and Bing all banning ICO adverts, taking the regulated route will allow you to use these channels for greater exposure. You’ll also ease the troubled minds of many would-be investors rattled by the recent bad press.

What Does This Mean for Airdrops?

Several ingenious ICO teams have taken to creative ways of marketing their projects by using airdrops. Effectively, distributing free tokens to interested parties and creating buzz for their sale. We’ve even seen some incredible physical airdrops, with tokens falling out of balloons.

In this herculean effort to circumvent securities laws, airdrops have gained momentum. Who doesn’t love free money, right? You can even sign up to be alerted to up-and-coming airdrops and revel in all the free cash. But if your Mom ever told you nothing in life comes for free, sorry to say she was right.

Websites alerting people to airdrops

Just as there’s no such thing as a free lunch, there’s no such thing as free stock. That’s not just Momma talking, that’s the Securities and Exchange Commission, as well. So, if you thought that airdrops were an excellent way of getting around the ad ban, or marketing your ICO, you should probably shelve that idea too.

Airdrops are not compliant either.

And they will likely be regarded as security transactions, which presents quite a problematic scenario. Darren Marble, CEO of CrowdfundX, a marketing firm for STOs, points out, “You can’t just send shares of stock to people. The problem with an airdrop is that it’s generally incongruent with US security laws.” So, that great marketing tactic for creating awareness and even escalating FOMO? Not such a good idea after all. “My general advice for STO issuers,” he continues, “I would put that airdrop concept on hold. I would advise anyone in the US not to do it. I get it, it’s a good marketing tactic, but there’s too much risk and uncertainty.”

This Isn’t Fun Anymore

Regulation seems to paint a gloomy picture. Just utter the word and it sends the crypto markets quivering. But the purpose of regulation seems to be two-fold. To give blockchain companies a legal framework from which to work, and to protect investors from ICO scams. According to Marble, blockchain companies shouldn’t get too downhearted. Even though it feels as if their wings are being clipped, there are still plenty of ways of getting funding. He says: “I don’t think real teams should be that concerned. If you have a real blockchain concept or team and you’ve got some skill or differentiation or an incredible vision, the fact that you can’t advertise on Twitter should not deter you or stop you from raising money.”

Hedge Fund Funds

So, you can’t (or don’t want to) hold an ICO, you can’t drop free stock into investors’ wallets and you can’t wow users on social media. But there are still other ways to raise money and they may sort the wheat from the chaff. “If you look at what’s happening in the space, there was obviously a huge rush of retail investors into the market in 2017 and now that’s largely subsided. The Google searches for Bitcoin have dramatically decreased. The conversation about Bitcoin at the dinner table was last Thanksgiving. Now there’s a rush of crypto hedge funds.”

We’re talking about small hedge funds that have anywhere between $5 million to $500 million to invest. And they’re waiting to hear about your project. “Innovative companies,” says Marble, “even if you’re a small team, you can go out and find a page that lists all these funds and then contact these people. The best deals in the space are being funded by a small group of passionate crypto hedge funds that aren’t necessarily impossible to reach.”

Closing Thoughts

The future of fundraising may look a lot different, but it doesn’t have to be gloomy. As ICOs and airdrops start to subside, so too, should the deluge of shitcoins and hollow white papers selling nothing but air.

Article Produced By

Christina Comben

Christina is a B2B writer and MBA, specializing in fintech, cybersecurity, blockchain, and other geeky areas. When she's not at her computer, you'll find her surfing, traveling, or relaxing with a glass of wine.

How to avoid getting duped by a bogus initial coin offering

How to avoid getting duped by a bogus initial coin offering

  • 271 initial coin offerings have appeared so far in 2018, according to Coindesk. In 2017, there were 340.
  • In the last several years, investors have poured more than $12 billion into ICOs.
  • Red flags include promising high investment returns and accepting credit cards for investors to buy in.

"There's a real chance the [Securities and Exchange Commission] or another regulator won't be able to recover your investment, even in cases of fraud," said Lori Schock, director of the SEC's Office of Investor Education and Advocacy.

An ICO involves the sale of digital coins or tokens, which are typically used to fund a project that involves blockchain technology. In simple terms, this technology — which underlies bitcoin and its crypto brethren — ensures that all transactions using it are secure. Some ICOs are pitching either a new cryptocurrency (i.e., the next bitcoin wannabe) or could be exchangeable for one that is planned by the ICO's promoters. Others might give investors the right to use the coins toward a product or service that

will be offered.

"There's a real chance the [Securities and Exchange Commission] or another regulator won't be able to recover your investment, even in cases of fraud." -Lori Schock, Director of the SEC's Office of Investor Education and Advocacy

While not all of these digital assets are considered securities — regulators have said it depends on the specifics of each ICO — many meet the definition of a security and therefore are subject to U.S. securities laws. Already this year, 271 of these offerings have appeared, according to Coindesk. That's on top of more than 340 in 2017. In the last several years, investors have poured more than $12 billion into ICOs. However, the SEC says no ICOs have been registered to date.

Rather, the SEC's Cyber Unit — which has only been around since last September — has brought several fraud cases against operators of ICO offerings. Just this week, the agency announced that it has obtained a court order to shut down an alleged ICO scam that pulled in $21 million in investor money. In total, the SEC alleges $600 million has been raised in fraudulent schemes.

State securities regulators also have been busy. During the first three weeks of May alone, the North American Securities Administrators Association's "Operation Cryptosweep" resulted in nearly 70 inquiries and investigations and 35 pending or completed enforcement actions related to ICOs or cryptocurrencies. Additionally, other investigations into potentially fraudulent conduct are under way, and that's on top of more than a dozen enforcement actions previously undertaken by state regulators.

Even if a particular ICO is held with good intentions, there's no way of ensuring you'll ever see a return on your money. In fact, as is the case with any investment, you could lose all of it. Worse, you face the risk of criminals being behind the ICO and absconding with your money. And if the perpetrators are located overseas, the task of tracking down your investment could be impossible.

"The currency might be virtual, but the pain is real," Schock said. Both federal and state securities regulators have been engaged in public outreach to warn investors about the risks associated with ICOs and cryptocurrencies. The SEC even created its own bogus website to show investors what an ICO scam could look like.

Here are some of the big red flags to watch for.

Promise of huge returns

Generally speaking, investing comes with no promises. So if you're looking at an ICO that is pledging a certain return on your investment, you probably should walk away. "There are no guarantees when it comes to investing,"

Schock said. "A guaranteed return is a major red flag."

"There are no guarantees when it comes to investing. A guaranteed return is a major red flag." -Lori Schock, Director of the SEC's Office of Investor Education and Advocacy

 

Credit cards welcome

If you're invited to use your credit card to buy into the ICO, be very wary. Most licensed and registered investment firms don't let their clients use credit cards to buy investments or fund an account. Remember, too, credit card debt typically comes with interest charges if you can't pay off the balance immediately. So that investment could cost you more than anticipated. "If you don't have the money to buy it outright, you certainly can't afford to go into debt for it," Schock said.

 

The deal will disappear

Often, scammers will use high-pressure tactics to create a sense of urgency in the deal."Anything that pushes you to take action now, or discounts that disappear or countdown clocks … those are red flags of fraud," Schock said.

What else you should do

Even if the ICO's white paper — which details the investment and has become a standard with ICOs — looks legit and makes sense to you, don't let that be the end of your due diligence. Look into the people behind the offering. Scam ICOs have included pictures and bios of nonexistent workers. Make sure you can independently confirm that the executives listed are real people with credentials. Additionally, don't let a celebrity endorsement — real or fake — draw you in. The SEC has warned that it could involve a paid promotion, and that the person pitching the ICO might have little understanding of what they're recommending.

Article Produced By
Sarah O'Brien

Personal finance reporter

Sarah O'Brien reports for CNBC's personal finance team.
https://www.cnbc.com/2018/05/30/how-to-avoid-getting-duped-by-a-bogus-initial-coin-offering.html