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Cryptocurrency: ‘trustless’ nature irks regulators
Context:
- Last October, the Board of the International Organization of Securities Commissions (IOSCO) discussed the growing usage of Initial Coin Offerings (ICOs) to raise capital as an area of concern.
The risk factors:
- ICOs typically involve the creation of digital tokens and using distributed ledger technology and their sale to investors in return for a cryptocurrency.
- It also said that the term ICO, stems from “initial public offering” (IPO), i.e. a floatation on a stock exchange.
- ICOs are highly speculative investments in which investors were putting their entire invested capital at risk.
- In Budget 2018, the government did not consider cryptocurrencies legal tender and would aim to eliminate their use in financing illegitimate activities.
- Acquisition of cryptocurrency coins may result in substantial risks for investors.
- These currencies are highlighted as “trustless” nature and are “not backed by anything real” such as gold.
Conclusion:
- Investors should go beyond the headlines and try hard to understand the risks associated with investments in cryptocurrencies, as well as cryptocurrency futures contracts and other financial products.
- As ICOs are a highly speculative form of investment, investors should be prepared for the possibility of losing their investment completely.
