WHAT EXACTLY IS AN ICO AND HOW IT WORKS?

[arvinabeabe]

An ICO typically involves selling a new digital currency at a discount — or a “token” — as part of a way for a company to raise money. If that cryptocurrency succeeds and appreciates in value — often based on speculation, just as stocks do in the public market — the investor has made a profit.

Unlike in the stock market, though, the token does “not confer any ownership rights in the tech company, or entitle the owner to any sort of cash flows like dividends,” explained Arthur Hayes of BitMEX, one bitcoin exchange. Buyers can range from established venture capitalists and family offices to less wealthy cryptocurrency zealots.

Investing in a digital currency is extremely high-risk — more so than traditional startup investing — but is motivated largely by the explosive growth in the value of bitcoins, each of which is now worth around $4,000 at the time of publication. That spike helped introduce both fanatics and professional investors to ICOs.

Advantages of Using Bitcoin

¤Greater Liquidity Relative to Other ¤Cryptocurrencies. ...Increasingly Wide ¤Acceptance as a Payment ¤Method. ...International Transactions Easier ¤Than Regular Currencies. ...Generally Lower ¤Transaction Fees. ...Anonymity and Privacy ¤Relative to Traditional Currencies.

Common modes of Bitcoin theft (The Cons)

Stealing Private Keys - Private keys stored in publicly accessible digital repositories, such as Bitcoin exchanges or personal cloud storage drives, are vulnerable to theft by hacking. The thieves use these private keys to access and transfer the corresponding Bitcoin holdings, relieving their rightful owners of their funds.

Exploiting Wallet Vulnerabilities - Some Bitcoin wallets have security flaws that render them vulnerable to attack. As a convenience, some service providers store private keys in the same virtual wallets as Bitcoin funds themselves, allowing hackers to steal the funds and keys in one fell swoop.

Operating Fraudulent Exchanges and Investment Funds - Some seemingly legitimate companies dealing in Bitcoin are actually fronts for financial crimes. For instance, a boutique “Bitcoin investment fund” called Bitcoin Savings & Trust made a name for itself in the early 2010s by providing outsize returns to early investors. However, Bitcoin Savings & Trust was actually a run-of-the-mill Ponzi scheme. When it went belly-up, it wiped out about $4.5 million (at then-current exchange rates) in investor value.

Attacking Legitimate Exchanges Directly -  Since they attract thousands of users and store millions of dollars in Bitcoin, exchanges are attractive targets. Bitcoin can be stolen from exchanges’ own Bitcoin wallets (which they use to store Bitcoin units taken as exchange fees), from users’ wallets (as many users store Bitcoin balances with exchanges for convenience, similar to a brokerage account’s cash balance), or during exchanges and transactions themselves.

Attacking Dark Web Marketplaces - The vulnerabilities of dark web marketplaces are similar to those of Bitcoin exchanges. Another huge Bitcoin heist, not as well publicized as the Mt. Gox hack, affected a dark web marketplace called Sheep Marketplace. Losses approached $100 million at then-current exchange rates.

Strategies for Reducing Security Risks

The cybersecurity industry is locked in a constant arms race with hackers and other cyber-criminals, whose sophistication and operational scope increase by the week. In this environment, there’s no such thing as a complete guarantee of security – particularly when money is involved.

However, prudent Bitcoin users employ these common-sense strategies to reduce their exposure to theft and general security breaches:

•Securing your Private Keys
•Use Highly Secure Bitcoin Wallets
•Researching Bitcoin Exchanges and Other Services before proceeding with any transaction
•Avoiding the Dark Web - Like real world black markets, the dark web is an unsavory and sometimes dangerous place.