Some companies are saying that it’s safer to use blockchain technology to issue virtual currencies, according to National Committee of Experts on Internet Financial Security Technology. Many Internet companies have said that they want to use the technology because of its performance.

According to a Chinese social networking service provider, Renren, there has been a 76.3% rise in its share price on January 2 and 3. That came right after the company said it would go for blockchain technology to issue its own Renren coin.

But you should be warned against speculative frenzy over Initial Coin Offerings (ICOs) in cryptocurrencies such as bitcoin. Various policies, technical updates and market speculation affect the trading prices of these virtual currencies. Therefore, investors are advised to pay greater attention to risk mitigation.

ICOs are similar to initial public offerings (IPOs) and are designed to raise money for internet-based startups. But their similarities with IPOs end there.

If you’re investing in ICOs be ready to lose all your money, as some of the schemes are frauds. They are high-risk, speculative investments, and if you get into them you should be prepared to lose your entire investment.

Is Bitcoin a Fraud?

Investors in ICOs don’t raise funds in sterling, euros or dollars, instead they pay in cryptocurrencies such as bitcoin and ether. A “coin” or “token” is issued to them, which is their share in the firm.

Even celebrities have started using ICOs, Paris Hilton and Floyd Mayweather being two. Hilton tweeted to her 16 million followers she was investing in LydianCoin to raise $100m roughly around £75m.

With China at the center of it all, it is estimated as much as £1bn may have been pumped into ICOs. Although still on the up side, regulators around the world have come down with the whip with bitcoin taking a dive. An indicator would be its price down from $4,950 in September 2017, to below $4,300.

Bitcoin and Others under Scrutiny

At the moment, ICOs are completely unregulated, offer no investor protection, are extremely volatile, and have the potential for fraud. In addition, ICO white papers or prospectuses might be unbalanced, incomplete or misleading, according to the FCA.

Regulators around the world have sounded a similar alarm. The People’s Bank of China banned ICO fundraising and digital currencies, citing illegal fundraising. State-run news agency Xinhua says, with 65 ICOs launched during the year, Beijing and Shanghai, have seen the most activity, raising about £300m from 105,000 investors.

How You Make Money

As an ICO investor you make money when value of your coins goes up, with huge gains in bitcoin and ethereum, another cryptocurrency, up from $12 to $308. That’s the reason why a lot of investors are prepared to speculate. Incidentally, bitcoin has been up sixfold since January inspite for recent downturns.

Focus on ICOs as Cryptocurrency Falls

Launched with 31,591 bitcoin, which translates into around $18.5m, Ethereum came about after its first 60m ether tokens, followed by at least 10 other ICOs on ethereum alone. The Basic Attention Token for tracking-free advertising on the Brave adblocking browser raised $35m, the MobileGo token in a cryptocurrency-based video game marketplace raised $26m, and the Bancor Network Token, backing a platform to launch their own blockchain tokens raised $152.3m, were all part of that fraternity.

Among startups, the biggest failure has been the Decentralised Autonomous Organisation or DAO, which was a crowdsourced hedge fund. Investors lost about $150m with them due to a weakness in their code with funds drained off by a hacker.

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