The Complete List of ICO Scam Signs


May 17, 2018

ico scam signs

Do Not Invest in ICO Scam: Expert Tips to Avoid Being Scammed with Warning Scam ICO Signs

Initial coin offerings referred to as ICO, is a relatively new fundraising model. Innovative startups can quickly raise initial capital without going rounds of presentations and other time-consuming steps of a traditional process of raising funds. At the same time, investors embrace the opportunity to be the first to invest in digitally disruptive projects in the development that could one day become new facebooks. So you’re considering investing in ICOs? You will find most common ICO fraud signs in this guide.

The whole ICO ecosystem is still in its infancy and like all growing species is plagued by fraud. The most common type of ICO fraud is bogus platforms and “exit scams.” The abundance of scam in the ICO ecosystem makes legislators around the world intensify their efforts to create a reliable legal framework to verify if the ICO is legitimate. Current legislation doesn’t provide clear answers to help you do your due diligence.

At the moment ICOs are legal in most countries although China and South Korea have banned this type of investment seeking until financial regulations are set in place. Still, most ICOs have been by far and largely unregulated. Given the massively growing ICO market — just in 2017 USD 1.78 billion was raised at cryptocurrency-related investment projects — that’s why the necessity in the financial and legal regulation of ICOs is absolutely vital. Conditions are ripe for fraudsters of all kinds.

In very essence, an initial coin offering works in the same way as crowdfunding projects. The developer’s team would produce a white paper which provides details of the future solution, outlines the way it works, describes which needs it’s going to solve, and how the investment is going to flourish into a profitable product. At this stage, most startups don’t even have a minimally viable product to showcase. It’s all about an innovative idea that helps resolve a real problem when assessing initial coin offering. And if the product launch is successful, investors plan to gain profits from their tokes which should massively grow in price. But of course, there’s no guarantee that the product or a solution will be a certain success.

The team would also publish a website where potential investors can find the amount planned to be raised, the timescale, and the terms on which the funds would be returned to investors in case of a fraudulent initial coin offering, and because of that, the quality of the website matters.

Speaking of a failure, like in any other type of investment, due diligence is a must, although with ICO you don’t have access to a team of financial analysts that will do the hard work for you. Warren Buffet said that you should never invest in something that you don’t understand, so learning about the product or solution that is going to be brought to the market and the team behind this product is a starting point. Here are some of the things you should be watching out when evaluating a project so you don’t become a victim or a fraudulent or simply poorly researched ICO.

Inconsistent Online Visibility

A stylish well-designed website is one thing but the real people behind it is another. If you are serious about investing in ICO you should be running some simple background checks on the team and their advisors and that’s why you need to examine LinkedIn profiles of the founder, C-suite, security experts, and of course advisors. Many scam ICOs create very lifelike LinkedIn profiles and other social media accounts for their “teams”. One of the ways of spotting a scammer would be running Google Search on images of the team. Very often, a scam ICO would be evident at this point when you see stock photos or even actors in place of the development team photos. When using Chrome, you can simply right-click on the photo and choose image search option in the drop-down menu.

Another important thing to watch out when doing your research of ICO team legitimacy is to check whether the project you are going to invest in is actually listed in the team’s work history as well as their activity on social media. Also, note if they are members of the industry-specific or educational organizations. Most of the universities will be happy to verify if these people attended them, especially if the team doesn’t provide a response.

Also, don’t neglect the way the project as a whole interacts with the public. Don’t take the huge following as a sign of public trust. Facebook and Telegram following can be purchased quite cheaply. See if the project is actually participating in channels such as Telegram and if there’s two-way meaningful communication between ICO team and the public. The surefire way to detect a scam is non-existing channels of instant communication or inability to provide a clear answer from the public. ICOs must make it easy to connect with investors and communicate with us on social media.

Promises of Guaranteed Profits

Not a single investment can promise that it will be successful and profitable. Even less promise can be made in such a risky environment as cryptocurrencies as there are no legitimate ways to ensure a profitable investment. Beware of such promises as “the most rewarding ICO” or “returns guaranteed” on the website or in the advertisements and analyze the social media messages of the project if it doesn’t provide such promises. In the meantime make sure to note any such claims when assessing the marketing campaigns of the project.

Fake Problem Solutions

Sometimes the startup looks for solutions to problems that simply do not exist or pose no urgency. Don’t invest in a company that wants to develop their tool to sell snow to Eskimos! Often intensive marketing efforts can be a sign that a company wants to sell as many tokens as possible without even trying to invent something truly valuable. Another sign of a fake startup is an absence of an open-source solution uploaded to a GitHub repository. A reliable startup should allow investors to examine their code and review their development skills to verify if the solution promised can actually function and bring any value. GitHub directory should be updated regularly and the team should be discussing their solution on specialized forums such as Reddit. Also, note what public is saying about the project.

Bad Quality of the White Paper

This document is vital for the success of any ICO. In the whitepaper, the team presents the idea of the project, any supporting data, plans to make this happen, a detailed technical description of the solution and any distribution models that are planned to be implemented. If the white paper doesn’t provide clear answers to these questions, it’s possible that the ICO is fake. A low-quality, poorly written white paper is a surefire sign of a scam. Another issue is the originality of this document. A fake ICO would use freelancers to compile information from other white papers and that’s why using a plagiarism detector tool such as Copyscape would be a good idea.

Unrealistic Time Scale

It’s a common practice for an ICO to include a plan of actions tied to a timescale. They explain not only what they plan to achieve but exactly when. If the plan is unrealistic especially if there is no product ready, then chances are that the ICO is fraudulent. The company promises to sound a little too good to be true? Then it’s a sign of a scam.

Disproportionate Presale

Presale is a common way to generate more interest to the ICO and to get funding even earlier. While in a legitimate project a small portion of tokens can be sold to developers and early bird investors, a sign of scam is when presale is offered on a very large amount of tokens. Once they are gone, so will go to the “team”. Also, a bad sign is when it’s announced that tokens raised at presale will be used to develop a prototype — this shows that the project is very far from becoming a reality.

So now you are better prepared to become an investor in a cryptocurrency world. If you would like to minimize the chances of being ripped off, check the following: the clear roadmap, Open Source code deposited to GitHub, active social media presence, real people with good credentials, poorly written white paper with lots of grammar errors are the clear signs that you should make a better use of your money. Have a good tip and thinking of investing? Tell us about your experience.