What Risks Investors and Authorities See in ICOs

While Bitcoin has been booming, so have ICOs, possibly on an even bigger scale. However, the ability to seemingly make money out of nothing has raised the hackles on a few key authorities, and also made a few investors think twice.

ICOs come with a brand new, never before seen, set of risks and considerations and because of the nature of them, the authorities and the investor should proceed with caution.

The recent crackdown

Bitcoin and some of the more established cryptocurrencies continue to – for the most part – walk hand in hand with governments and regulatory bodies as they look to find a middle ground. However, the spin off from this has been the mass creation of ICOs.

The difference between an ICO and something like Bitcoin essentially rests in time and trust as the original digital currency has had time to prove it is not a scam and is operating for the right reasons.


A rather large and important risk to consider, especially for investors, is the threat of fake cryptocurrencies, or scam ICOs. China, speaking of the country leading the crackdown, has a number of recent investment scams, such as Fanya Metal Exchange, Ezubao and Shanxinhui.

As such, there is a big emphasis on protecting users from scam ICOs, which are not hard to manufacture, and succeed with, given the frenzy surrounding the ‘search for the next Bitcoin.’


Of course, another big risk is that there is no threshold, standard or regulation surrounding ICOs. Bitcoin has only just started seeing regulation, which is strengthening its resolve within states, and that has been near on 10 years in the making.

With ICOs popping up almost weekly, and across the globe, it is nearly impossible for regulators to control or indeed, even standardize the potential investment – or in other words, legitimize it somewhat.

Illegal practices

With this difficulty in regulating ICOs comes a difficulty in identifying illegal practices carried out in them.

Different facets of ICOs can flirt with the line of the law, but because there is no regulation, no standard, there is not much room for authorities to stamp the law on ICOs.

Global market

Additionally, the global scale of ICOs and the availability to those all across the globe mean that certain factors of an ICO may well be illegal in the country of a user investing into the ICO – even if it is legal in its country of origin.

This again puts regulators and judiciaries in a difficult place in policing them.

Avenue for money laundering

Being a virtual good to start with, it is hard to keep tabs on records of transactions. However, with free rein, it becomes even harder as there is little to no track record for virtual goods and transactions.

And, even with the immutable ledger that most of these ICOs are based on providing a new age record, there are facets of anonymity that can lead to money laundering.

Socio-economic order

This point may be a little controversial as it is essentially authorities and regulators shunning changes in an established social order, in other words, fighting against disruptive technology. But again, the extent of this disruption can verge on the illegal, and it can also break down norms in society that authorities hold dear.

Circumventing established institutions

Institutions that have been set up to protect and serve the citizens, such as the IRS and SEC in the US, have found it difficult to gain control in the digital currency market thus far, and the addition of hundreds of ICOs makes it even more frustrating.