The database comprises companies from European countries namely France, Germany, Switzerland, Estonia, Latvia, and non European countries such as Russia, United Kingdom, United States, Japan, Singapore, and Australia. This work aims at addressing the specific characteristics of ICOs using relevant variables that play a key role in determining the success of the ICO.Īs it stands there is no database with the information we are looking for, thus we have been building and constantly maintaining a dataset that is currently composed of 196 ICOs that occurred between October 2017 and November 2018 ( Cerchiello et al., 2019). They also create a secondary market where tokens can be employed as rewards for using the app of the company or the offered services ( Subramanian, 2018). ICOs favor open-source project development and decentralized business, generating a built-in customer base and positive network effects. Bitcoin is currently the largest blockchain network followed by, Ethereum, XRP, Litecoin, EOS and Bitcoin Cash ( Coinmarketcap, 2018). Blockchain (chain of blocks) is the technology at the basis of a cryptocurrency it is a Distributed Ledger Technology defined as a distributed, shared, encrypted database that serves as an irreversible and incorruptible repository of information ( Wright and De Filippi, 2015). When we say cryptocurrency, we refer to a digital currency, a new means of exchange, the most popular examples of which are Bitcoin and Ethereum. They can offer the inner value of their business by selling “tokens,” i.e., units of the chosen cryptocurrency, like a regular firm would do by means of an Initial Public Offering (IPO). Start-ups and existing businesses are turning to alternative sources of capital as opposed to classical channels like banks or venture capitalists. The portal Tokendata.io has estimated that until 2017 ICOs raised as much as $5.3 billion around the world if we consider venture capitalist, in 2016, they invested $71.8 billion in the United States and $4.3 billion in Europe (National Venture Capital Association and Invest Europe). Later, the amount of bought tokens can be sold or used in the future to obtain products or services. Tokens can be bought directly on the web platform of the company, at different stages of the ICO commonly referred as pre-sale and sale. ICOs issue “tokens,” i.e., the unit of a chosen cryptocurrency, in exchange of a flat cryptocurrency, in order to participate in the crowd-funding of the company. Up to the present date, more than 1,700 cryptocurrencies have been created but not all of them are successful or characterized by a significant impact. Initial Coin Offerings (ICOs) can be considered as an innovative way of obtaining funding, promoted by entrepreneurial companies that base their business projects on a new technology known as blockchain. Through logistic regression, multinomial logistic regression, and text analysis, we are able to shed light on the riskiest ICOs. We leverage a number of different variables like: entrepreneurial skills, Telegram chats, and relative sentiment for each ICO, type of business, issuing country, team characteristics. In this paper, we employ statistical approaches to detect what characteristics of ICOs are significantly related to fraudulent behavior. However, fraudulent activities perpetrated by unscrupulous actors are frequent and it would be crucial to highlight in advance clear signs of illegal money raising. The investors, of course, hope for an increase in the value of the token in the short term, provided a solid and valid business idea typically described by the ICO issuers in a white paper. They can offer the inner value of their business by selling “tokens,” i.e., units of the chosen cryptocurrency, like a regular firm would do by means of an IPO. Initial coin offerings (ICOs) are one of the several by-products in the world of the cryptocurrencies. Department of Economics and Management Science, University of Pavia, Pavia, Italy.
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