Models of bitcoins in Hong Kong. Anthony Wallace

The global trend of crowdfunding with cryptocurrency sales, often called initial coin offerings, skyrocketed this year to raise several billion dollars for hundreds of blockchain projects. However, despite the hype, these tokens are still extremely risky investments.

The American legal infrastructure hasn’t figured out how to classify cryptocurrency yet. It can fall into multiple legal categories, depending on the context. Some laws consider bitcoin a commodity while others label it a type of digital property. When it comes to alternative coins, including new ICO tokens, all bets are off.

There is no standard ICO token. Some are equity tokens while others are utility tokens, which often function more like a digital coupon, software license or high-tech product than a traditional investment. The U.S. Securities and Exchange Commission warned prospective buyers to avoid tokens that could classify as securities. Yet, according to research by the database operator Token Report, most of the top 65 ICO tokens with the highest market values have a medium to high possibility of being legally classified as securities.

Securities are strictly regulated. They can only be lawfully sold to accredited investors. So if any of those questionable yet lucrative ICO projects that used a regular crowdfunding approach were taken to court, authorities could close them down and nullify the tokens' value. CoinDesk reported a securities fraud lawsuit has already been filed in California against the founders behind one of the year’s most successful ICOs, the $232 million Tezos token sale.

Some blockchain projects, such as FileCoin, are taking precautions by only selling tokens to accredited investors. But potential legal battles aren’t the only risks. Even solid technical foundations can’t guarantee stability. Bloomberg reported the market value of the Bancor project’s token crashed 56 percent by November, despite raising $153 million in a summer token sale.

“It’s naive to think these aren’t incredibly risky, not only from a legal standpoint but also from a technological standpoint,” Peter Van Valkenburgh, director of research at the nonprofit Coin Center, told International Business Times. “Frankly, I don’t think people should invest in ICOs... they are really more experiments than investments.”

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If you are tech-savvy person with interest in a specific platform or community, it’s reasonable to consider buying a token you actually plan to use. However, regardless of whether the token is a security or not, there is no guarantee these tokens will have lawful monetary value in the future. “While I think there is reason to be optimistic about utility tokens...the SEC has been silent on this idea of utility tokens,” Valkenburgh said. “There is no way to hedge against risk.”

That’s why some of the relatively mature startups are looking to learn more about selling public investment opportunities the old fashioned way. Last week, NASDAQ and the Israeli bank Leumi launched a first-of-its-kind partnership to help tech entrepreneurs learn about IPOs.

“Getting money from the public is a different ball game than getting money from private [VCs],” Yifat Oron, the CEO of Israeli Bank Leumi’s subsidiary LeumiTech, told IBT. “It does require jumping to another layer of maturity for the company.” This educational program will launch in Israel in 2018, offering select startup clients direct access to NASDAQ experts.

There are a lot of reasons why a cryptographer might want to raise money from the public, not to mention the difficulty women and people of color face when trying to launch high-tech projects. Although FileCoin’s approach might work for some projects, treating token sales like traditional investments won’t solve the broader issue facing the cryptocurrency community. At some point, public support is one of the only ways to develop sophisticated technology without requiring institutional support.

“At the end of the day, for companies to sustain independence, and not have to be sold to strategics,” Oron said. “They will have to be able, if they need the money, to go public."