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STO, ICO and Cryptocurrencies; Oh, My!

Cryptocurrencies are a hot topic – and if news is to be believed, it may still be a hot investment with a lot of potential.  With cryptocurrency investments a new concept for many people, it's important to understand the words surrounding the buzz and exactly what regulation of these currencies could mean. There are potential cybersecurity risks with cryptocurrencies and understanding the dangers is the first line of defense. 

First introduced as a decentralized (or “off the grid”) form of currency, currencies now have regulation, representation and real-life cash values in many parts of the world. It's changed the way cryptocurrencies are viewed, and it's changed the way investors should approach them. 

  • Do you know the difference between a security-token offering (STO) and initial-coin offering (ICO)? Would you know which of these your money has been going to as a potential investor walking into the crypto-space for the very first time?

If your answer to the above is "no" or "not yet", then you should read this.

Here's what you should know about the differences between security-token offerings (STOs), initial-coin offerings (ICOs) and the potential for investing in cryptocurrency.

STO versus ICO: What's the Difference? 

First, let's talk about the difference. 

An initial-coin offering (ICO) describes the first investment in a cryptocurrency, often a new or emerging one. An initial offering is an investment that's still finding its feet, that's still developing – and that might take off radically, or might fade into obscurity as a currency that could have been.

An initial-coin offering is an investor's guarantee. But usually, an initial-coin offering doesn't have an individual dollar value – not yet.

A security-token offering (STO) describes a more established, regulated type of cryptocurrency. It's out there, it's being traded with, it's as solid as stock – and it has monetary weight. It's a regulated investment that holds more return and less risk.

An STO is tied to the real-life value of another asset. 

While initial-coin offerings can be legitimate investments, they can also be scams – and for investors, it can be really damn hard to tell. There are plenty of scams (and scammers) out there just using the term "coin offering" as a means to an end – and thus, all ICOs should be examined with extreme care.

The Advantages of Tokens (STOs)

A security-token offering is backed (or enforced) by the value of a real-life commodity or currency.

When the commodity or asset that your cryptocurrency STO goes up or down, then you can expect to see a fluctuation in the value of the currency as an effect.

As a result of this, security-tokens are generally considered to be more stable than initial offerings. Overall, they can also be easier to predict in terms of where they might be going next.

Security-tokens are often also regulated – and the rules of trading are enforced. 

Even though cryptocurrency was originally designed as the currency that was impossible to control or regulate, regulation has become important in the crypto space to ensure that the industry is able to remain fair and legal.

The Disadvantages of ICO

Initial-coin offerings have the potential to be booming investments; but at the same time, they can also be unbacked forms of cryptocurrency that turn out to be little more than disappearing pots of gold at the end of the rainbow.

Some ICOs have made it big. But does that mean your money should rush to the first ICO you can find? Certainly not.

Experts seem to agree that there was an ICO boom at one point, but also that the ICO boom has long since passed. Now, most of what's out there isn't worth the risk.

Studies show has much as 80% of ICOs in 2017 were scams. This leaves only a marginal fraction of legitimate offerings out there; and it's suddenly the kind of risk that no smart investor would be willing to deal with.

Is It a Scam?

If you're asking, probably. (One of the first and best gauges of scams is sometimes your very first instinct when it comes to the matter.)

Scams have red flags no matter which forms the scam might appear in. It's true for telephonic scams, e-mail scams and certainly for cryptocurrency scams that pop up every day.

Here are a handful of sure signs that your cryptocurrency isn't what it claims to be:

1. Does it feel like a multi-level marketing scheme?

Things that feel like a multi-level marketing scheme, generally are.

Steer clear of any investments that have incentives to invite, or ask for recruitment; anything that resembles a pyramid scheme tends to be exactly what it looks like.

Investments shouldn't (and don't) follow the typical MLM format. If they do, you should stay away from it and report the scheme to the right authorities.

2. Does it feel like a cult?

Scam investments that don't feel like pyramid schemes can often feel like cults: run by very charismatic (but also often very confusing) leaders, and centered around symbols that means nothing to anyone outside the group.

Watch for any investments that have the feel of a cult instead of a pyramid.

Generally, it's a sign that an investment is more charismatic than viable. (And it can be a sign that an investment is an outright scam; check.) 

3. Does it ask for vast amounts of personal info – and then nothing?

Take care with mailing lists and investments which ask for vast amounts of personal information; usually, they're not asking for the benefit of their investors, but instead because they're after the information itself.

Also take care where follow-ups aren't regular (or too regular), or where customer support is terrible with the most basic questions you could think of to ask.

4. Do the basics look sketchy, questionable or unclear?

Where the outline of any potential investment doesn't answer the most basic questions an investor might have thought to ask, then much more care should be involved.

Scams are likely to look legitimate on the surface, but once this has been scratched away, the scam itself becomes more obvious. Learn to check, especially where things don't look or feel right.

5. Are promises or returns exorbitantly high?

Scams are designed to hook a lot of people in a short amount of time; What's easier than promising high returns to potential newcomers?

Careful of any impressive return promises that feel like a devil's deal; usually, they are.

This is a contributor’s article by Alex J. Coyne.