The Security Risks of the “Junk Food ICO” Trend

One of the most dangerous aspects of an ICO is the general ignorance regarding blockchain amongst not just the public, but investors as well. The public views blockchain tokens as some sort of weird hybrid of fairy dust and gold bouillon, in that you can sprinkle blockchain on an ordinary product and suddenly it becomes immensely valuable.

For example, the Long Island Iced Tea company saw its stock value triple when it changed its name to Long Blockchain. No one knows what, if anything, Long Blockchain will actually use blockchain tech for, but the name change alone was assumed to be valuable.

By the same token (pun intended), a major Hooters franchisee is planning to convert its customer loyalty system to a blockchain rewards program, so that you can now literally measure the value of certain tokens in chicken wings and hamburgers.

The problem with these gimmicks isn’t that they are fleecing investors who still think of Bitcoin as a conventional currency. The danger is the huge risks posed by tacking on blockchain as a cash-grab, rather than as a fully secured technology. These “Junk Food ICOs” — so called not because they involve fast food companies, but because they treat blockchain as something you can just grab as quick-profit takeout food — pose real “health risks” to their parent companies.

Blockchain in general, and Bitcoin in particular, can’t be counterfeited, but can very easily be lost or stolen. And if your ICO investors assume that your tokens can be used like a conventional currency, and that they have the same protections and conveniences as modern credit cards, you’re setting yourself up for some serious customer dissatisfaction the moment the first cache of your tokens gets misplaced or social-engineered away.

Conventional currency has a safety net built in. The amount of cash in circulation is regulated by central banks, most American consumer bank accounts are insured by the FDIC, mainstream credit cards have built-in fraud protections, and American investment vehicles are regulated by the Securities and Exchange Commission. If something goes wrong, there are established protections to limit the damage and protocols for seeking restitution.

Blockchain tokens don’t have this same mature security ecosystem, and the public (nor investors nor corporations) clearly doesn’t appreciate the risks that entails. Thus, it is incumbent on you to build security into your blockchain ecosystem prior to any ICO — if only to prevent a wave of customer and partner backlash should anything go wrong.

Moreover, at some point a major consumer blockchain play is going to go bad, and the public will demand proof that any other token offering has better protections in place. The companies that invest in ICO security and compliance now will have a head start on every other blockchain firm when the public finally starts to take token security and management seriously.

Initial Coin Offerings are the Wild West of technology and investment — which means you might strike gold, or you might get robbed by bandits — but it also means that those who build their ICOs on secure foundations are best positioned to survive the chaos ahead.

If you want to ensure the security of your token technology, sign up for an ICO security and compliance audit today.

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Practical Assurance helps companies prepare for compliance with SOC 1, SOC 2, HIPAA, ISO 27001, IISF, and provides ICO and smart contract audits.

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