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Bitmain CEO Jihan Wu: ICO’s Constitute “Unsustainable Financial Bubble”

Cryptocurrency, Initial Coin Offerings (ICOs)–Jihan Wu, founder and CEO of the world’s largest cryptocurrency mining firm, has come forth with a rather scathing opinion on the current model of investing in coin projects.

Speaking in an interview with CoinGeek, Wu had harsh words for Initial Coins Offerings (ICOs), giving his opinion that the model seemed largely unstable and reflected more of the financial bubble danger that is so commonly associated with Bitcoin. In addition, Wu expects the ICO market to implode at some point in the near future, stating that it is “just a matter of time,” before the model of funding new cryptocurrency development is gone entirely,

“I believe ICOs are kind of an unsustainable financial bubble. It will burst eventually. It’s just a matter of time. I believe it’s just one year or two. Either way, it will just disappear.”

The basis for Wu’s argument against ICOs is not in the fault of cryptocurrency or other coin projects, which he finds superior to the current Wall Street model. Indeed, Wu imagines a future where traditional trading assets, such as stocks and bonds, move to a tokenized platform a la many cryptocurrency exchanges. However, ICOs–in contrast to their quasi-relative with stock IPOs–offer zero protection to investors and are going to find it hard to survive coming government regulation. In addition, investors into ICOs are not paid in dividends, the right to share-voting, and may end up investing in currencies that are regulated as securities despite the initial lack of protection.

Wu blames the rampant price speculation that has come to characterize the entire industry of cryptocurrency as being at the heart of the ICO model. Rather than investing in projects and coin development that have real-world sustainability, the typical ICO investor is looking for a quick turnaround–a principle that was confirmed earlier in the year when economists found selling in the first two weeks of a token release provided the best ROI. The interest is in profit alone, rather than creating any form of sustainability in the market. The same greed-driven mindset has extended to several development leads, with more than one ICO closing as a scam after taking investor funds.

Rather than going the ICO route for funding the ongoing development of Bitmain, Wu and his team have decided to file for a traditional Initial Public Offering (IPO), a move that has come under some controversy when it was leaked that the company might be hemorrhaging cash via an over-extension into Bitcoin Cash. While the cryptocurrency mining conglomerate was able to raise $400 million in an earlier round of funding, this week has brought about somewhat bizarre news stories of previously-reported investors in to the company denying any association. Last week Softbank, who holds the distinction of being the largest investor into Uber, denied rumors that it had invested in the Bitmain IPO. Just yesterday DST Global made the same claim in an anonymous tip to Cointelegraph that was later confirmed, reneging on earlier reports that the company had decided to put money into the IPO. Chinese multinational investment holding Tencent also threw its hat into the ring of denials, releasing a statement to a Hong Kong news outlet that

“the company did not take part in the investment of Bitmain Technologies.”

While Wu may be echoing an industry concern over the unregulated, bubble-like nature of ICOs, initial coin offering-backed projects have been booming throughout 2018, already doubling in volume over last year.  

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ICOs Being Blamed for Ethereum (ETH) Sinking Price

Ethereum (ETH)–After a 16 percent decline in value over 24 hours, the price of Ethereum sunk to its lowest point in nearly a year. Trading a $265 as of writing, the second largest cryptocurrency by market capitalization has completely retraced the gains made following the beginning of the year’s massive bull run. While some have pointed to the overall state of the cryptomarkets as being bloated and unhealthy, with altcoins across the board experiencing double digit losses on the week, the head of crypto hedge fund BloomWater Capital is placing the blame on ICOs cashing out.

As Bloomberg points out, the massive number of ICOs being built on the Ethereum blockchain was the primary catalyst for Ether’s price gain throughout last year, in addition to the significant amount of development interest it generated. Now, the very same usability is leading to price decline that is outpacing Bitcoin, as investors who were previously purchasing ETH to participate in Initial Coin Offerings (ICOs) are staying out of the market.

Considering that the majority of ICOs to come out in the past year have been built as ERC-20 tokens, it has made sense for investors to buy in with existing Ether coins. In addition, Ethereum has lower mining fees and faster average transaction times than Bitcoin, while still being a highly recognized coin. While previous reports have seen the ICO market double in volume through the first half of the year over 2017, existing ICOs are cashing out in massive volumes to cover the costs of the sinking crypto market. The result is a forced selling of Ether, driving the price of ETH down ahead of other top of the market coins like BTC.

Biswas Das, director of BloomWater Capital, blames the amateurish development filling the ICO space, which has far less regulation than typical startups and overall lower barrier to entry–both contributing to headaches for investors and would-be project speculators,

“These startups are raising a lot of funds but they don’t have treasury management or enough cash management experience, so they’re selling too early and causing a lot of pressure in the market. It was fine last year but right now the the market is so fragile that it causes a lot of pressure.”

As Das puts it, the fragility of the current market is unable to withstand the forced selling and downward pressure of ICOs cashing out to cover costs, causing Ethereum to drop to price levels not seen since the middle of last year. Bloomberg also points out growing concerns over the ability of Ethereum’s network to handle transactionary volume in addition to the ICO’s being built on the platform. The end result has been other platform-focused cryptocurrencies springing up in the interim, such as Cardano’s ADA and TRON’s TRX, to fill the void in investor skepticism over Ethereum being capable of handling the development volume.

Bloomberg also quotes Spencer Bogart of Blockchain Capital LLC, saying that general disillusionment in ICOs, in conjunction with growing stories of scams and outright profiteering has caused some backlash towards the platform that hosts the ERC-20 based tokens,

“Investors are increasingly disillusioned with tokens and ICOs, most of which have been launched on top of Ethereum and we’re seeing this play out in the market with continued downward price pressure.”

ICOs have managed to thrive despite the bearish market of 2018, however not without controversy. A study published earlier in the year found that 80 percent of ICOs could be classified as ‘scams.’

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SEC Slaps 'Fraudulent' ICO Founder With $30K Fine, Lifetime Ban

The U.S. Securities and Exchange Commission (SEC) announced Tuesday that it had secured new prohibitions against the founder of a company behind an allegedly fraudulent initial coin offering (ICO).

The agency said that it obtained officer-and-director and penny-stock bars against David Laurance and his company, Tomahawk Exploration LLC. Tomahawk, the SEC alleges, sought to raise funds through a “Tomahawkcoin” token sale that utilized misleading marketing materials and false claims about oil drilling licenses.

Further, the Tomahawkcoin is said to have been sold along with the false promise that “token owners would be able to convert the Tomahawkcoins into equity and potentially profit from the anticipated oil production and secondary trading of the tokens,” according to the SEC’s statement on the matter.

According to the Tuesday announcement, Laurance has neither admitted nor denied the SEC’s allegations but he and the company have agreed to the bars along with a $30,000 penalty.

The officer-and-director bar prevents Laurance from serving in either capacity in a public company, while the penny stock bar prevents him from trading or owning penny stocks. Both prohibitions are permanent, according to the SEC.

“Investors should be alert to the risk of old-school frauds, like oil and gas schemes, masquerading as innovative blockchain-based ICOs,” Robert Cohen, who leads the SEC’s Cyber Unit, said in a statement.

SEC emblem image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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ICO Market Doubled in a Year, Investing up Ten-Fold

Initial Coin Offering–Despite the sinking price of cryptocurrency across the market, initial coin offerings have managed to fair well in terms of growth through 2018. While the entire industry is embroiled in a bear cycle that has continued into the eighth month of the year, ICOs have doubled since 2017, while drastically increasing the amount of investment funds.

According to a report by ICORatings, a website that publishes independent research about upcoming and launched projects, the entire ICO market has doubled within the last year, with projects having already raised $11 billion throughout 2018. To put that figure in perspective, ICORatings reports that ICO investing through Q1 and Q2 in 2018 is ten times that over the same period last year, showing a substantial boom in investing in new coin projects. While the ICO market has drawn significant criticism over the last several months due to the propensity for scams, empty projects and unproductive profit seeking through cryptocurrency, the overall health of ICO investing appears to be thriving.

The report includes specific details about Q2 2018, stating that 827 new projects raised over $8 billion in funding, up from $3.3 billion in Q1. The 151 percent increase through the second quarter of the year is reflective to the interest generated by cryptocurrency, in particular the low barrier to entry for startups and developers that is afforded through the initial coin offering model. However EOS, currently the fifth largest cryptocurrency by market capitalization, made up the largest share of the ICO pie,

“Funds raised by EOS project account for most of this increase, they have collected $4,197,956,135 for a year-long ICO.”

ICORating also highlights Europe as the leader for all ICO projects, launching 46 percent of new developments this year, with North American investors contributing the most capital. In addition, the report mentions that Asia has seen an increase in investment capital flowing into ICOs, despite a decrease in the overall number of projects launched.

While the current atmosphere surrounding cryptocurrency and Bitcoin hinges upon the U.S. Securities and Exchange Commission’s ruling on the creation of a BTC ETF, ICOs have already started to incorporate larger amounts of institutional investors. The report shows that institutional capital in ICOs is on the rise, while retail investment continues to decline. ICORating finds this to be a favorable position for the growth of the ICO market and general well being of cryptocurrency, as greater institutional interest leads to higher standards in the development of the projects. In addition, the fundraising of ICOs will become more dependent upon “how well projects cooperate with investment funds,” thereby raising the standard across the industry.

Despite the positive news published by ICORating on the growth of the market, reports earlier in the year revealed the industry still has room to grow in terms of achieving higher quality. A study published by Statis Group found that 80 percent of ICOs in 2017 would fit into a category of “scam,” relaying the experience of investors who have found themselves duped by empty projects or teams that run off with investment funds. However, most have recognized that ICOs offer a high degree of innovation as a model for funding new projects and, despite the bad actors filling the space, are helping to grow the industry in terms of development. 

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Overstock's tZero Wraps Up Months-Long Token Sale

Overstock.com’s token platform subsidiary tZero is officially ending its security token offering (STO) on Monday night.

TZero announced that its STO would end at 11:59 p.m. Eastern Daylight Time, or 03:59 UTC. Further, the platform said “there will not be further extensions,” according to statements.

The statement added that “investors with fully executed Simple Agreements of Future Equity (SAFEs) have until 5 PM (EDT) Wednesday, August 8 to remit funds to tZero. The company plans to report on the results of the STO this coming Thursday, August 9, 2018, during Overstock’s earnings call.”

It was not immediately clear how much tZero raised during the round. A spokesperson for tZero declined to provide additional details when reached, telling CoinDesk “results will be announced during Overstock’s earnings call on Thursday.”

The STO was originally announced as a more traditional initial coin offering (ICO) late last year, almost immediately seeing some 2,000 investors and $100 million committed to the platform, according to Overstock.com founder Patrick Byrne.

The startup later claimed that it raised $100 million as part of its token presale, which ended in March and preceded the rest of the STO, as previously reported by CoinDesk.

Overall, the firm had planned to raise as much as $250 million through the sale.

Abacus image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Study Concludes 80 Percent of ICOs in 2017 Were “Scams”

Initial Coin Offerings (ICOs)–The bad news for ICOs continues to roll out this summer.

Last month, TechCrunch published a review of the crypto industry, concluding that over a thousand projects were already considered dead, despite some still having a presence on exchange and coin listings. The overwhelming majority of failed projects were in the form of short-lived ICO projects, which barely made it out of the fundraising period before dying in the interim following coin issues.

Research out of the Boston College Carroll School of Management supported this claim, when they found that over half of all ICOs die within the first four months of issuing their tokens. Only 44% of the projects were able to sustain any sort of growth or momentum past the four month mark, with the survival rates dipping even further thereafter. While they concluded that the profits for ICOs are still substantial relative to the traditional stock market (about 82% ROI in 2018), there is a significant drop-off in return from 2017, where some investors were collecting four-digit percentage gains on their investment. In addition, the risk of investing in ICOs has steeply increased despite the fall in return, which the researchers found antithetical to good investment practice. They also found that most of the profit surrounding ICOs occurred in the first week of token issues, with a steep drop off past the two week and two month-mark, thereby recommending that ICO investors sell their coins as quickly as possible to insure the greatest risk/reward return on investment.

All of this is troubling given the growing landscape of ICOs in 2018, already surpassing the total volume of projects issued in 2017 despite being only halfway through the year. As prices for established cryptocurrencies continue to plummet, more developers are drawn to the industry of cryptocurrency via the ICO format as an unregulated road to riches in the volatile market. However, a new study concludes that the majority of these “developers” are more akin to scam artists, and that the entire industry should be vigilant in promoting and reviewing ICO projects.

Issued by the ICO advisory firm Statis Group, the research concluded that 80% of ICOs in 2017 constituted a scam. The study cites the exponential growth of cryptocurrency projects as leading to the variability in quality, up from just 14 crypto assets in 2013 to over 1500 currencies at present. While the study examined the full breadth of ICO existence in 2017, from initial proposal of the project to when the coin was ultimately available for trading on exchanges, the evidence was damning: only 20% of initial coin offerings during the year passed the criteria for being a legitimate project; the rest were scams. Three percent of the total ICO volume was declared “dead” by the end of the year, which the researchers referred to as no longer being listed on exchanges for trading. Which means, in less than a year, some coins had managed a proposal, funding, and token issue only to be such a colossal failure that exchanges would no longer list them for trading.

On a positive note, the research concluded that the majority of  monetary value was being funded to projects that the analysts rated “higher-quality”, despite the total volume of projects skewing heavily towards being a scam,

Over 70% of ICO funding (by $ volume) to-date went to higher quality projects, although over 80% of projects (by # share) were identified as scams.

While ICOs represent the current avenue for innovation and new development in the space of cryptocurrency, the vast majority of projects being labeled scams in addition to the high rate of failure is likely to draw more attention to the need for regulation in the space of crypto fund-raising.

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Over Half of ICOs Die Within Four Months of Token Sale

Initial Coin Offering (ICO)–The health of the ICO market is looking even more bleak. Initial Coin Offerings, the gold standard for raising money in the un-regulated market of cryptocurrency, has created a contentious landscape over the past year. The Boston College Carroll School of Management has released a study on over 4000 ICOs and found that the majority of projects were considered dead within four months of issuing their token to buyers, and cause a significant decline in value for investors who hold their coins longer than 60 days.

The beginning of this month brought about the report that over a thousand cryptocurrency projects are considered dead or dying, littering the landscape with empty coins that can still be traded for real value on exchanges. In addition to the decaying landscape of crypto-projects, ICO volume throughout the first half of 2018 was revealed to have eclipsed that of the entire year of 2017, despite the bear cycle cutting hundreds of billions of dollars from the market capitalization. The end result is even more projects at risk of failing in the brief window following their token issue, with fewer new ICOs able to establish themselves in the depressed market despite the flood of development teams looking to capitalize on the quick riches of last year.

Tezos, the controversial coin that broke records in July 2017 by raising 232 million USD in its ICO, has just finally issued tokens to investors before subsequently experiencing a roller coaster of price swings in the first week of trading.

The study by Boston College researchers reveals that while ICOs provide a decent return on investment, traders are forced to act quickly in selling their coins. Rather than hold on to ICO tokens out of a belief in the technology or anticipation of further price appreciation, invetors benefit the most from selling their coins within the first several weeks of trading, with ROI severely declining past the two month mark. In an interview with Bloomberg, researcher and co-author Leonard Kostovetsky recommends investors sell within the first several days to guarantee the safest form of return,

“What we find is that once you go beyond three months, at most six months, they don’t outperform other cryptocurrencies. The strongest return is actually in the first month.”

It is interesting to wonder whether ICO investors are creating the panic-sell and subsequent fall off in price in anticipation of market behavior that has historically characterized ICO token issues, i.e. investors sell because they believe everyone else will sell. Given the dramatic drop in price following most ICO releases, it creates the appearance that few investors believe in the underlying technology or any sort of interest in the project being funded, and instead view the process of ICO investing as a race to sell as soon as possible.

As Bloomberg points out, while the fastest investors to sell are the ones to benefit, the majority are left behind in the price movement. Given the limited exchange availability most tokens face upon ICO release, some investors do not have the ability to sell from the get-go. Others are not even able to participate as individual investors in the ICO, leaving them at the mercy of the market to purchase tokens belonging to up-and-coming projects they find some value in. Tezos exhibited similar behavior last Monday when it was first listed on the solo exchange Gate.io. The price quickly plummeted from 4.00 USD to 1.22 USD, before making a recovery over the weekend.

Overall, the study also concludes that the ROI for ICO investing is in steady decline and becoming a much more risky prospect relative to the volatility of the traditional crypto market. Speaking again with Bloomberg, Kostovetsky warns against investors looking for guaranteed riches by going the ICO route,

“People often look at returns and say this is a great deal, but we teach in finance that return is a compensation for risk. These are stakes in platforms that have not yet been built, that have no participants yet. There’s a lot of risk. The majority of ICOs do fail.”

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ICO Volume in 2018 Already Double that of Previous Year

Cryptocurrency–According to PricewaterhouseCoopers (PwC), a multinational consulting firm based out of London, and the Swiss Crytpo Valley Association, the number of Initial Coin Offerings registered  in 2018 have already doubled that of the total for all of last year. Despite the plunging price of cryptocurrency, down nearly 70% in market capitalization from the beginning of the year, ICOs have continued to thrive in the space of crypto. While many of the major projects on the market today had their beginnings in an ICO, the practice has largely begun to become regarded by investors as a negative component of the industry. Regardless, the widespread method for funding cryptocurrency projects has managed to find even greater traction in 2018. According to the report:

“In total, 537 ICOs with a total volume of more than $13.7 billion have been registered since the beginning of the year. In comparison, in 2017 there were a total of 552 ICOs with a volume of just over $7.0 billion. Also, the average size of an ICO has almost doubled from $12.8 million to over $25.5 million since last year.”

ICOs are the current source of innovation and provide funding for new projects related to cryptocurrency. But for every one project that offers true potential, innovation and an outline for real world use, there are ninety-nine or more ICOs that amount to nothing more than a pump scheme. When Warren Buffett compares cryptocurrency to gambling, and continually labels the space as a bubble, he is largely looking at a landscape littered with the malpractice of negligent ICOs.

It is worth pointing out that cryptocurrency needs to have an avenue for new project creation and innovative development. The novelty spawned from ICOs is not the problem–in fact it drives the future of cryptocurrency and the steady progress of the industry. The real problem is the narrative and culture surrounding the ICO model. For the most part, ICO’s operate as empty pump schemes, with the entire focus on turning a quick profit. The end result is exploitation, money flowing into an essential ponzi scheme, and a myopic focus on development with the only real milestone being the one that allows a company to start fundraising. ICOs are beneficial to the industry when they can inspire novel ideas and allow for talented, intelligent developers a conduit into the space of cryptocurrency.

The real problem becomes creating a healthy balance between the two. Given the decentralized ethos of cryptocurrency, a feature necessary to both the industry and community, ICOs offer a free market approach that is available for anyone to contribute. Although this opens the door to charlatans and all but blatant criminals, it also allows for anyone to begin developing cryptocurrency without the hassle of gatekeepers.

While the investment base of cryptocurrency would like to see a level of responsibility imposed upon the process of ICOs, particularly one that shifts the incentive away from short-term profit and immediate cashouts to one that rewards the prospering of technology and currency adoption, it also requires a level of centralization and gatekeeping that could stymie innovation during a period when it is most vital to the growth of cryptocurrency. There is no way to create a regulatory or vetting body for ICOs that does not introduce the possibility of foul play in the form of third parties with ulterior motives. Current investors do not want to share market cap with projects that could kill their cash-cow currencies, and established developers have little incentive to promote their competition.

Promoting education, in addition to self-policing community efforts, might be the best option in handling the ICO epidemic. True decentralized communities allow for the market to dictate the growth of the industry, with individuals ultimately held responsible for their financial decisions–even if that means buying into a scam ICO. Cryptocurrency, at this stage in development, cannot afford to impose strict guidelines that stymie growth and the type of innovation that could lead to the next big breakthrough. While the ICO model might be unpalatable to the average investor, it is beginning to look more like a necessary evil to ensure the current trend in growth continues.

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Cryptocurrency Investors from U.S. Can Take Part in ICOs Legally

The dance of crypto-regulations and the digital currency community is going on still to this day. What made it the worst is the anticipation of regulation, even worse than the regulation itself. With no information what the to-be rules are, the first and safest thing to do is wait for the worst.

However, there are various forms of Initial Coin Offerings that are legal in the U.S., and that not only for accredited investors but also for anybody that wants to step in.

The registration process of a securities offering is quite an expensive deal to take care of and not so easy for those not accredited investors.

One company, however, is trying to take the headache out of the registration process. Republic, which calls itself “the Amazon of private investing,” has developed an SEC-compliant fundraising model that allows their clients to make worry-free offerings to all clients—of any income level. 

The SEC exemption the the Republic reaches for is for online crowdfunding.

The crowdfunding must be: “online through an SEC-registered intermediary, either a broker-dealer or a funding portal permit a company, and the raised funds cannot exceed $1,070,000 per year.”

There are no limits to which investors can step in, but there are borders for how much they can add up. Investments are issued in “Token DPA’s” — debts payable by assets, Republic’s alternative to SAFTs. Unlike SAFTs, Token DPA’s come with obligations of payment.

“It is structured as debt to the project and a loan from participants,” Republic stated in an emailed statement. These tokens can also include escrow provisions, to “guarantee investors funds are used responsibly.”

Even that the word letters ICO or Initial Coin Offering could be none existent on their site, the concept and idea behind it is very similar. What makes them different is:

“When you invest on Republic you receive a financial stake in the company in the form of a security.”

For the traders that are after the quick-investing-make-money deal there is one condition that could be a dealbreaker:

“It is important to understand that as holders of a Token DPA, there are substantial restrictions on resale and trade during the first year of ownership, with few exceptions.”

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Sherpa Loses His Life on Mount Everest after Helping ASKfm Record Cryptocurrency Promotion

Initial Coin Offerings (ICOs) have been expanding in every single industry. Important companies have released their crowdfunding campaigns, and this time is ASKfm the one carrying out an ICO. But not everything is as perfect and nice as desired. One Sherpa is presumed dead on Mount Everest after he was left during the descent.

ASKfm Tragic ICO

ASKfm is one of the most important social media networks on earth, and it was working very hard so as to release its ICO. Some early investors could start buying some tokens as a pre-sale. But in order to capture the attention of the community the team decided to send four crypto enthusiasts on an expedition to the Mount Everest.

But which was the intention? The idea was to show that the company is not afraid of challenges and that it is possible to turn a social network into a blockchain ecosystem.

The company released a statement in which the explained:

“The statement here is that ASKfm is not at all afraid to rise to challenges. They’re conquering Everest because it’s out there to conquer. By doing so they claim: if they’re bold enough to do it, they’re bold enough to turn a social network into a blockchain ecosystem, and they’re definitely bold enough to overturn the market with their new product.”

Moreover, the expedition wanted to show that the team was able to be on top of the highest mountain on the planet. But nothing in the statement was related to the man that helped the team reach the top of the Mount Everest.

“While others try sophisticated marketing techniques, these guys went out there and put themselves right on top of the highest mountain on the planet,” reads the statement. “An elegant way to boast ideological superiority to every other crypto. A way quite strangely unexplored before. Even memes-wise, think about the closest starting point to reach the moon. It seems so obvious, yet no one has done it.”

As reported by the Financial Times, Lam Babu Sherpa, a veteran of three Mount Everest summit is presumed dead after being left behind by the explorers. About this situation, ASKfm’s CEO Max Tsaryk, said that he was ‘aware’ of the situation that someone had gone missing during the trip. Furthermore, he explained that it was not their place to ‘make public statements’ that could have been false.

ASKfm was trying to launch a token known as the ASKT Token for its more than 215 million individuals that are located in almost 170 countries. Blockchain technology would help the company to create a path to democratic environments and self regulate economic models.

The token would give professional influencers and experts the possibility to ask and answer questions and receive rewards based on the quality of their content. One of the most important things that ASK.fm is promoting is the mantra: ‘your answer is an asset.’ There will be 2,000,000,000 ASKT tokens available.