Crypto 101

Cryptocurrency Investment Strategy: Signs to Look for in Fraudulent ICOs




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Initial Coin Offerings (ICOs) are ways that blockchain-related startups use to raise funds. Similar to crowdfunding, these startups generally offer their own line of “coupons” in exchange for prominent cryptocurrencies including bitcoin (BTC) and ethereum (ETH).

Unlike the traditional IPOs (Initial Public Offerings) which are protected by financial entities that ensure certain legal conditions are met by organizations offering shares, ICOs are not governed by the same rules. ICOs are less regulated compared to traditional capital markets and this makes them prone to fraud and other manipulation. While many credible blockchain startups will initiate an ICO due to the need to raise funds and meet their goals, there are some fake projects that come up as fraud and exit scams. 

Yes, the regulatory watchdog is trying to clamp down on some of the scams, but there is a loophole in which fraudulent schemes are still able to flourish. That’s why you need to take precaution when investing in any token sale. Make sure you know not just the risks, but how to detect a fake ICO as well. Here are some of the signs to look out for in a fraudulent ICO.

Poor Online Presence

One of the best ways to spot a potential ICO fraud is by checking the individuals behind it. See, if something is legit, then the people behind it are also legit- meaning they are easily searchable online. A powerful ICO will introduce potential investors with a detailed breakdown listing its founders, advisors, security experts, developers, and any other person associated with the project. However, an “about us page” alone should not be enough to tell whether or not an ICO is worthy. 

Tracing the ICO founders on Google and LinkedIn should be the first step in determining the legitimacy of a company. Ensure their LinkedIn profile lists the project. You can also check previous association with other companies and educational institutions. 

A browser like chrome comes in handy in such cases. You simply right-click on the image of the person and you will be able to search for other cases of it online. 

No White Paper, Blatantly Plagiarized Whitepaper, Whitepaper Full of Fluff or Buzzwords

A white paper is an important component of any ICO. This is the document that outlines the motive behind any blockchain project, what it intends to achieve, the token distribution model, and how the technical outlook of the platform work. An initial coin offering without a white paper is definitely a scam.

Also, the best white paper should go straight to the point; with no fluff or poetic language. Whitepapers for genuine ICOs clearly spell out their project. An example of such whitepaper is the one for bitcoin as it is brief, concise, and easy to understand.

Lastly, the whitepaper should not have vague buzzwords that don’t really mean anything. Too much jargon or borrowed language in a whitepaper smells fishy. Whitepapers of legitimate ICOs will have wordings and concepts that are essentially original. 

Extremely Professional and Spotless Website

This might sound odd, but sometimes a website that looks spotless and extremely professional may indicate a scam. More often than not, fraudsters will go an extra length to spend on a professional website and other marketing materials like a whitepaper just to build trust in the potential investors

Determining whether these companies are scammers or not can be tricky; they will have their ICO dates set up, only for the dates to change later on. Then you visit the website and boom! It’s not there. That’s when it hits you that it was all a scam to raise funds and exit.

Unrealistic Promises and Guaranteed Profits

Have you heard of the statement “investing in ICOs guarantees you millions in no time? “And, did this move you? Of all the signs of a potential phony ICO, definite profits are the most pronounced. There are no guarantees when it comes to the blockchain system, and no proven, certain, and reliable methods of making profits.

Take note that promises of guaranteed profits will come in different forms. Some will pledge to offer automated trading programs that deliver huge returns. Others will guarantee returns to shareholders for “staking” their coin.

BitConnect is a well-known example of an ICO that guaranteed huge profits only to turn out to be a Ponzi scheme. 

People Reviews

If you can easily find them online, people’s reviews about a particular ICO will be very helpful when you are trying to look for its authenticity. Aim at gathering sufficient reviews and feedbacks from people across the world. Do not disregard even one negative review; in fact, this should be a signal for you to continue researching.

A legitimate ICO should have social proof and validation that can help potential investors know them better. Cointal, a popular peer-to-peer crypto marketplace for instance, has thousands of active users who publish reviews that demonstrate the authenticity of their product. Their unity service, which allows users to exchange currencies instantly using different methods such as credit transfers and ACH transfers, has already amassed massive attention from across the globe. 

Final Thoughts

There are many fraudulent ICO platforms out there trying to scam unsuspecting investors. But, these scammers are not hard to spot. It is vital to perform thorough research before investing in an initial coin offer.  As a rule of thumb, remember that even the most stable cryptocurrencies and ICOs are criticized for being a merely speculative investment. So keep your eyes open as you look for investment opportunities in the cryptocurrency and ICO spaces. Be aware that if something sounds too good to be true, then it probably is. We suggest that you slow down, research, analyze, and only then can you make a decision to invest in any ICO.