Pennsylvania Law School Shows Most ICO Whitepaper Promises Never Delivered
New Report Shows That ICOs Fail To Stick With Most Promises Made During Their Sales
Initial Coin Offerings (ICOs) are one of the easiest ways for a platform to gauge interest in their cryptocurrency and to offer securities to consumers. However, they have also historically been major failures, rarely following through with the promises they make. In fact, the University of Pennsylvania Law School recently said that these ICO’s “failed” to offer protection or follow through with the claims they stated in their whitepaper. The report came out on July 17th.
The study was named “Coin-Operated Capitalism,” and it introduces the topic of cryptocurrency by discussing the differences between the expectation of an investor and the reality of what happens. There were four different professors that contributed their observations, saying that this information reflects a “significant” amount of projects.
The paper starts with a comment regarding their revelations, which show that “many ICOs failed even to promise that they would protect investors against insider self-dealing. Fewer still manifested such contracts in code.” Reading down the article, it continues on to say,
“Surprisingly, in a community known for espousing a techno-libertarian belief in the power of ‘trustless trust’ built with carefully designed code, a significant fraction of issuers retained centralized control through previously undisclosed code permitting modification of the entities’ governing structures.”
In a world where Bitcoin is the leader, ICOs are still being received with varied reactions, and even a few fraud scandals to hype up sales. Some of these scams are due to being hacked, like Bancor. Bancor successfully accrued $153 million in their ICO within just three hours this month, but they were hacked for $12 million or it. When it comes to false promises, the professors specifically named Polybius, which is a financial institution in Estonia that promised one thing but delivered a different reality.
The UPenn professors said that the whitepaper for Polybius included, “several claims that would lead us to expect certain features directly coded into tokens or other smart contracts.” However, when discussing what they found, they said, “Beyond ERC-20 compliance and the presence of a modification feature, we did not verify that any of these features are present, largely because Polybius’s coded governance exists in bytecode ([…] the Ethereum machine language). Without spending a large sum of money purchasing the time and know-how of a very motivated and talented reverse engineer, an investor would be restricted to relying on vernacular promises.”
Even with these allegations, which have involved many public truths about troublesome platforms, leaders in the crypto industry continue to defend ICOs as a reliable way to raise funds. In fact, the CEO of Binance, Changpeng Zhao, said that “raising money through ICOs is about 100 times easier than through traditional VCs, if not more.”