ICO Scams Have Distanced Investors From Blockchain Investments

Disclaimer: The Industry Talk section features insights by crypto industry players and is not a part of the editorial content of Cryptonews.com.

In theory, ICOs are a game changing way to raise funds for innovative new projects. In some ways, similar to their nearly namesake cousin IPOs, yet with much bigger risks to take on board. With ICOs, all you need is a store window (your website) and a whitepaper to start raking in the moolah. Unsurprisingly with such a low barrier to entry, every man and his dog were launching ICOs in their heyday, as a way to kickstart platforms and projects. Back in 2017 and 2018, billions of dollars were raised. In 2018 of 1500 ICOs that were launched, a dramatic 78% were listed as scams.

To look deeper into this matter, CoinTelegraph started conducting research by web-scraping and creating an in-depth data library, which looked at all ICOs launched from August 2014 right up until December 2019. This represented a total of 5,036 ICOs. Their findings were quite shocking. Of this number they looked at data for 1014 different ICOs and found that 576 of these were downright scams, which totalled up to $10.12 billion in cumulative losses for unwitting investors. The most common scam from this group was the Petro-scam where individuals lost over $735 million in total. This scam was launched, perhaps surprisingly by the Venezualan President, where Petro, the cryptocurrency pegged against oil was actually worth only $59 in total.

Major ICO Scams

Some of the most common scams out there include phishing scams, where people get spam emails, or dubious links, requests for personal data, or see their crypto holdings magically disappearing from wallets. Other ICO scams include people not getting paid out promised rewards for promoting a project, crypto ponzi schemes and market manipulation, where rather than burning tokens as promised, they were instead distributed among the developers and friends of the team. All in all there are many types of scams around ICOs and this has put a huge majority of investors off of this revolutionary and generally very investable arena.
The question is, how can those looking to invest in projects really have a clear understanding of who is behind it?

Ethical Blockchain Investing

The solution lies with Parachain Slot Auctions, which is a safe and ethical way for investors to get involved in the crypto arena and minimize the risks associated with scams. Kusama / Polkadot Parachain Auctions are a way for individuals to fund slots for projects via an auction.

How Does it Work?

1. An investor picks the project they are most interested in, from a list of projects looking for CrowdLoans.
2. They will bond their investment for a certain amount of time, which they will know upfront.
3. By locking up their KSM and DOT and leasing it out for a preset period of time, they will not actually have to set it to nameless or facelless projects.
4. They will of course receive rewards based on the success of the project eg, in a vested way and in the meantime they will gain APY, similar to staking your holdings in any project.

The advantage of this, of course, is that users are not handing their holdings over to a project, instead through Parachain Slot Auctions they are leasing them out to tried and tested protocols. Projects that receive investment in this way must first jump over a number of hurdles in order to take part. They have to test their prootocl out through Rococo, which is the Kusama and Polkadot testnet, or through a similar testnet. Once the code is tested and verified then the project may compete in auctions to receive investors capital.

According to Kusama, these are the suggested steps to take part in an auction, although this can differ between teams:

1. Design a parachain and build it using Substrate
2. Test and optimize locally, then on a testnet like Rococo
3. Determine a slot lease auction strategy
4. Join an auction and bid away
5. Deploy on the acquired slot after the start of the lease period
6. Renew at end of the lease period by joining another auction

Does this mean the end of ICO scamming? Well, probably not as cyber criminals tend to be always one step ahead, but this is certainly one viable option for those investors looking to gain exposure to the blockchain domain without falling foul of scammers.

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