The founder of Wikipedia is cautioning investors against initial coin offerings (ICOs), labelling them as ‘absolute scams.’
In 2017, alone, the rise of ICOs has grown exponentially. According to CoinSchedule, this form of fund-raising has risen nearly $2.4 billion through 153 ICOs.
Earlier this year, Charles Hoskinson, the co-founder of ethereum, said that ICOs had increased to such an extent that there was now ‘an over-tokenisation of things.’
Similar to crowdfunding, people can invest digital currency, such as bitcoin or ethereum, into a particular ICO. Most ICOs are raising money for legitimate services. However, there are others which aren’t.
CoinSchedule lists the top 10 ICOs of 2017, which are:
- Filecoin $257,000,000
- Tezos $232,319,985
- EOS Stage 1 $185,000,000
- Bancor $153,000,000
- Kin $97,041,936
- Status $90,000,000
- TenX $64,000,000
- MobileGO $53,069,235
- Sonm $42,000,000
- Aeternity $36,960,594
So far July has seen the highest amount of funding raised through ICOs, generating over $600 million. It doesn’t list which ones these were.
Yet, despite the obvious craze that ICOs are creating, the founder of Wikipedia has cautioned investors to stay away.
In an interview, James Wales, Wikipedia founder, said:
“There are a lot of these initial coin offerings which are in my opinion are absolute scams and people should be very wary of things that are going on in that area.”
Countries in Agreement
Wales is not the only individual to think this.
Early in September, Chinese authorities announced they were banning ICOs. In a joint statement from seven of China’s regulators, it read:
“[ICOs are] a kind of non-approved illegal open fund raising behavior, suspected of illegal sale tokens, illegal securities issuance and illegal fund-raising, financial fraud, pyramid schemes and other criminal activities.”
As a result, tokens issued by ICOs saw their values drop.
On the 4th September, the-then 20th-placed Hshare saw the biggest fall in 24 hours of 50.02 percent. Over seven days it had declined by 67.20 percent. Then its value was worth around $6.55, pushing its market cap down to around $220 million. Its price did recover on the 7th September to $21.80, increasing its market value to $732.5 million.
However, at the time of publishing, on the 6th October, Hshare is ranking in 27th position. It’s currently trading at $7.02, with a 0.16 percent drop in 24 hours. Over seven days it has increased by 2.74 percent, according to CoinMarketCap.
Following China’s ban on ICOs was one from South Korea.
On the 29th September, South Korea’s financial regulator met to discuss digital currencies. At the meeting, Kim Yong-bum, the vice chairman of the Financial Services Commission (FSC), gave a speech. In it he said that ICOs were prohibited in all forms, including securities.
“ICOs are being increased worldwide by issuing digital tokens and investing in virtual currencies.”
“There is concern about the adverse effects such as the increase in the risk of fraudulent receipt.”
According to the FSC, ICOs are a ‘violation of the capital market law.’ Consequently, the regulator has said that an ‘intensive crackdown’ will take place. Additionally, ‘penalties’ will increase for ‘illegal acts.’
ICOs and Illegal Purposes
News of South Korea’s ban on initial coin offerings follows the thought process of many countries.
The U.S. Securities and Exchange Commission (SEC) decided, in July, to apply securities laws to the issuance of ICO tokens. Whereas, the Monetary Authority of Singapore (MAS) clarified its position on ICOs in August.
For many regulators, the greatest threat that ICOs present is their role in illegal activities.
Switzerland’s financial regulator is particularly concerned about this. According to the Swiss Financial Market Supervisory Authority (FINMA), ICOs are violating the country’s laws against ‘terrorist financing.’ As a result, it has announced that it’s investigating a number of ICOs. This is to determine whether they are in breach of ‘regulatory provisions.’
Switzerland is one country that has been embracive of digital currencies. So much so, that the Swiss town of Zug is known internationally at the country’s ‘Crypto Valley.’ Back in 2016, it took the innovative step of allowing its residents to pay for government services in cryptocurrencies.
The municipality of Chiasso in Switzerland will also see residents using bitcoin to pay for their taxes through a new scheme expected to launch next year.
Despite the open arms approach the country has, it’s keen to ensure that people trading in ICOs aren’t being scammed. One of its particular concerns relates to ‘provisions on combating money laundering and terrorist financing’ and other areas.
Larry Fink, the chairman and CEO of BlackRock, the world’s largest investment management corporation, is of the opinion that cryptocurrencies reflect the amount of money laundering taking place around the world.
In a recent report, Fink said:
“When I think about most of the cryptocurrencies, it just identifies how much money laundering is being done in the world.”
His concerns echo those of the chief executive of the Hong Kong Monetary Authority (HKMA). Norman Chan Tak-lam previously said:
“Bitcoin or other digital currencies do not require holders to trade under their real name which allows them to be used for money laundering activities.”
News of various country regulators taking steps to tackle ICOs has been met with disdain in some quarters. However, in others it’s been met with positive understanding.
Sasha Ivanov, CEO of blockchain company Waves, said:
“There’s no secret that a lot of the initial coin offerings, with ads on Facebook promising huge discounts and returns, are nothing but a scam.”
Oleg Seydak, CEO of Blackmoon Crypto observed:
“As a professional in the industry, we welcome the cleansing of the market from scrupulous participants and are ready to cooperate with regulators.”
And, David Moskowitz, co-founder and CEO of blockchain-powered social network Indorse, added:
“We hope the authorities will recognize the potential of the sector for economic growth and technological development, and enact rules which will allow for the safe and secure future of the industry.”
Belief in the Blockchain
Despite, Wales’ reservations about ICOs, he does, however, have faith in the blockchain.
“I think [the] blockchain is a super interesting technology.”
Primarily used within the finance sector the distributed ledger is now being tested in education, healthcare, insurance, law and humanitarian industries, to name a few. With its immutability, transparent records and efficiency in tracking things, it is quickly gaining prominence.
As a result, the Wikipedia founder believes that the blockchain will ‘be with us for some time to come.’
Featured image from Shutterstock.