One of the key promises of cryptocurrencies to their ‘users’/’investors’/’gamblers’ has been that of security of data stored on cryptos-backed blockchains and crypto ‘assets’ held by their owners. Yet, scandal after scandal, the myth has been deflated by the news flows, with security breaches, theft and fraud hitting the cryptos markets with frequency and impact not seen in traditional investment venues and asset classes.
Research by the Anti-Phishing Working Group released on Thursday shows that criminal activities have resulted in a theft of some $1.2 billion in cryptocurrencies since the beginning of 2017 (https://www.reuters.com/article/us-crypto-currency-crime/about-1-2-billion-in-cryptocurrency-stolen-since-2017-cybercrime-group-idUSKCN1IP2LU). Which is a significant number, but most likely an under-estimate to the true extent of theft and excludes fraud, especially fraud relating to the notorious ICOs.
In January-April 2018, ICOs raised some $6.6 billion, marking a 65% increase on 4Q 2017 ($3.9 billion in ICOs funding). Based on WSJ report that surveyed 1,450 ICOs, roughly 20 percent of the new offers raise major red flags for scams, including “plagiarized investor documents, promises of guaranteed returns and missing or fake executive teams”. Again, this is just a part of an iceberg. About half of all ICOs projects had no actual service or product offer behind them. In other words, investors in more than half of all ICOs were backing nothing more than a technological white paper, absent even a rudimentary business plan.
While there have been a lot of discussion in recent months about the potential Ponzi-game nature of the cryptos markets, irrespective of where you stand on the issue, there are two questions every investor must ask before dipping into the cryptos waters:
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- Do I, as an investor, really comprehend the risks, uncertainties, complexities, and ambiguities imbedded in product offers I am considering investing in? and
- Do I, as an investor, have meaningful avenues for monitoring, hedging and/or ameliorating the above risks, uncertainties, complexities, and ambiguities imbedded in product offers I am considering investing in?
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