Consumer Advisory on Investment Schemes Involving Digital Tokens (Including Virtual Currencies)

The Commercial Affairs Department (CAD) and the Monetary Authority of Singapore (MAS) have observed the emergence of initial coin (or token) offerings (ICOs), and other investment schemes involving digital tokens, in Singapore. Members of the public are advised to exercise due diligence to understand the risks associated with ICOs and investment schemes involving digital tokens.

What is a digital token?

A digital token is a cryptographically-secured representation of a token-holder’s rights to receive a benefit or perform specified functions. One particular type of digital token is virtual currency. Virtual currencies are typically used as a means to purchase goods or services. Examples of virtual currencies include Bitcoin and Ether.

However, the function of digital tokens has evolved beyond a virtual currency. For example, these digital tokens may represent ownership or a security interest over the token seller’s assets or property, or a debt owed by the seller. Such digital tokens have been marketed as investment opportunities.

How do ICOs and investment schemes involving digital tokens work?

Digital tokens may be offered through an ICO or other investment schemes. Digital tokens offered through an ICO are usually specific to the seller, and such tokens are typically sold to consumers in exchange for a widely-used virtual currency (such as Bitcoin or Ether) or cash. These sellers often set out their business proposal in a so-called “whitepaper” which is published online.

ICOs and other investment schemes involving digital tokens may be structured in many ways with different business propositions. For example, they may seek to develop a new digital platform. Others may offer an opportunity to invest in a property, business, and assets, or with a promise of certain benefits or monetary returns.

What risks should consumers look out for?

Consumers should make it a point to understand the product. Where sellers of digital tokens fail to highlight the risks, consumers should make the effort to find out more information about the underlying project, business or assets. Read the risk events at MAS’s website here.