Understanding Whales and Exit Scams in ICOs

Whales are notorious among cryptocurrency users, because they can manipulate prices. In traditional ICO systems, whales are able to control prices due to their financial means, even if their bids are not accepted. With their financial resources, tokens in capped sales can be sold out in minutes. Mainstream investors are not capable of doing this and whales can effectively bar many investors in participating. So, only a small group of investors with huge capital can gain profit. New methods have been introduced to ensure financial disincentive, so it would be costly for large scale miners to control transactions in any crowd sale.

Whales operate by placing a big for a large amount of tokens immediately and then pull it out later to create an artificially much lower evaluation. ICOs operators should penalize their subsequent bids to protect average investors from price manipulation. Protocols should be enhanced to ensure stable valuation and bids. Fees for submitting transactions should be affordable and flat to give equal opportunities for everyone. People with significant financial resources will always look for ways to manipulate ICOs, so it will take an extra effort to ensure that natural valuation is maintained.

Another risk associated with ICOs is exit scam. It happens when a company raises millions of dollar in ICO and exits with a bang. It’s relatively easy to fake product prototypes and concepts, with claimed technology and expertise that the company doesn’t really have. For investors, it’s relatively difficult to know whether a start-up is trustworthy and well-managed. Everyone is dreaming about becoming a crypto-millionaire, so it’s easy for some to get tricked by scammers. The anonymous nature of cryptocurrency makes it easier for scammers to throw pursuers off the trail. When doing crowdfunding through ICO, investors need to use common sense and avoid trusting people too easily.

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