The rise of popularity of the ICO (Initial Coin Offering) has sparked many comparisons to the false dawns of the Californian gold rush and even the famous Dutch Tulip investment flop of the eighteenth century. However, the crypto world has survived a crash at the end of 2017 and is surviving an ad ban by the largest networks – Facebook, Twitter and Google. In fact, in this digital age we live in, not only is it becoming increasingly more common for a company to raise investment through an ICO, but within the first four months of 2018, more money was raised through ICOs than in the whole of 2018.
This isn’t to say that the ICO world has not been without problems. There is a reason why leading advertising platforms like Google and Facebook have banned all crypto and ICO advertising. Branded as high-risk investments, there has been a growing number of cases of fraud or scam ICOs. The amount of fraudulent or scam ICOs is a subject of much debate. The Satis Group LLC in New York published a report which suggested as many as 81% of all ICOs are scams. Meanwhile, MIT published a paper which put the figure of scam ICOs somewhere between 5 to 25%. Whilst the actual figure is probably somewhere in between the studies, what is clear is that as the popularity of ICOs grows, so do the number of scam ICOs.
With as many as three ICOs being launched on average every single day, it can be a difficult task to navigate between those ICOs that are creating an innovative and exciting concept, and those ICOs that are nothing more than a fraudulent money-making scheme for those that launched it. With so many ICOs to choose from, how easy it to spot and avoid a scam. Well, there are certain red flags to look out for and if you know these red flags, you should not be taken in by a scam ICO. Here is what to look out for and how to avoid a scam ICO.
- The Website
The website is the shop window that people look in on and decide whether or not there is something worth buying in that shop. Poorly designed websites should invoke serious doubts and caution in the minds of potential investors. It can be little things like spelling mistakes, bad grammar of just poor English, but if a company hasn’t clearly not put the effort into their ‘shop window’ then it’s a good indication that you should not go inside.
- The Whitepaper
Put simply, if there is no whitepaper or a whitepaper is incomplete, then a red flag should be flying at full mast. There have even been cases of whitepapers being copied. If a white paper is badly written, copied or non-existent then the chances are that the ICO is a scam.
- The Team
There is an old saying that the most important asset of any business is its staff. Any ICO that is serious will not only list their team members but will also have photos and even provide a wide range of social media links and places in which investors can interact with the team members. However, it is important not to take the team page at face value. There have been some profile cases of fake profiles including the Empire Card ICO which got caught listing French actress Sabine de Poncins as the CEO of the platform as “Patricia Harrison”. Make sure to check the LinkedIn page of the CEO and ensure that their profile lists the ICO. Another good way of checking the authenticity of a team member is running a Google search on the pictures. Never invest in an ICO that features no team, or fake team members. It is more than likely that the ICO is a scam.
- Guaranteed Profits
One of the largest red flags when discussing how to avoid a scam ICO is when guaranteed profits are offered. One thing that is guaranteed is that there are no guarantees within in the blockchain ecosystem, and no guaranteed method of generating income.
Guaranteed profits are promised in many different guises. Some ICOs offer automated trading bots that promise to deliver huge returns. Other ICOs promise returns to investors for “staking” their coin. The latter is becoming increasingly more common as interest surrounding the Proof of Stake consensus method grows.
Arguably the most high-profile case of an ICO that promised guaranteed profits only to be revealed as a Ponzi scheme was BitConnect. Avoid ICOs that promise guaranteed profits, as there is no such thing in the crypto sphere.
- Over use of Buzzwords
Scam ICOs tend to try and confuse potential investors with the blatant over use of buzzwords. Known as a buzzword salad, look out for the over use of worlds like blockchain, AI, decentralized, trustless network, marketplace or even words and terms that they have invented themselves.
- Faked Token Sales and Faked Subscribers
ICOs rightly like to show their token sale progress by displaying their token sale address prominently, Scam ICOs, though, have a tendency to hide their token sale progress by giving individual contribution addresses so that no one actually knows how much investment is really raised.
One regular tactic amongst scam ICOs involves displaying a big “sold out” message. This is intended to create a false sense of urgency. You’ll see that the ICO has sold out in the presale rounds but when you scroll down to the bottom, it’s your lucky day that the final round of token sales is open and of course for a limited period only.
Inflated subscribers are another regularly used tactic by scam ICOs. Inflated numbers of subscribers offer safety in numbers and create a fear of missing out. The owners of Plexcoin were caught inflating subscribers and were jailed for it.
- No SEO Strategy
An often overlooked but important indicator of a scam ICO is by looking at their SEO strategy. In very basic terms, if there is a clear and identifiable SEO strategy in place, the ICO intends to be around for the long term and is probably not a scam. No SEO strategy in place indicates there is no plan post-sale which should send alarm bells ringing. For an ICO to be a success there needs to be a long-term strategy that goes beyond the launch.
- If It’s Too Good to Be True
As with anything in life, if something looks too good to be true, then it probably isn’t true. ICOs are no different. Unrealistic roadmaps and guaranteed profits are telling signs that something is too good to be true. Whilst blockchain technology may be revolutionary and highly disruptive, it’s not the ultimate solution to every single problem in existence. There are some ICOs that present tokenization as a solution to a problem that doesn’t exist.
Do Your Due Diligence
As with any investment it is important to do your due diligence and research what you might be investing in. It is important not to get carried away with ‘crypto fever’ and to make sure that what is being presented to you is true and verifiable.
Not all ICOs are scams but you must be wary and cautious at all times. Follow the above tips and you’ll be able to spot and avoid scam ICOs.