The smart contracts still have some vulnerabilities
which can unleash unexpected asset transfers for example.
Flaws in these smart contracts can cause unchecked withdrawals.
There is still an uncertain basis for token's valuation. Because of that, buyers might
value a token considering expected resale profits instead of its underlying economic utility.
Moreover, the first investors
can profit primarily with the capital inflow generated by new investors, which can be
dangerously close to a
Many investors interested in purchasing ICOs are not familiar with
the blockchain technology and this can make them more vulnerable.
Also, those buyers can easily lose their keys generated by the system to
access their accounts, which are necessary to access the tokens, and when a
private key is lost the user can't recover her tokens. Finally, users can
be more vulnerable to
phishing scams, where the
scammer impersonates the organization. If the user is caught in
the scam she can't reverse the payment that was already done.
For the market
The cryptocurrency market can be manipulated in some ways.
the token holder can change its price by releasing mislead information,
a practice known as pumping and dumping; another practice is called
spoofing, where traders place illegitimate orders to induce other users
to buy or sell tokens and then cancel the orders submitted before their execution;
also, some networks give users the possibility to make their
transactions faster than others by paying higher fees, practice known as front running.
Because of the underlying market manipulation, there is a risk of token's high price volatility.
When large ICO orders are placed in the network, the token's transfer can suffer delays.
It can be a challenge for organizations that issue ICOs to
accommodate all contributors and give them assurance about the
percentage of tokens that will be received for a given contribution.
The token distribution mechanisms can be ineffective sometimes.
Because there is a lack of formal regulation in many countries
about ICO, token users might avoid paying taxes,
and the financial authorities will have a harder time to prove
the tax evasion without official record keepings.
The uncertain regulatory schema can potentially enable
criminal practices such as the aforementioned (money laundering, terrorism financing).