Initial coin offerings are highly attractive for those that want to make a good profit really fast. If the ICO is successful, people get a huge return on the investment made. However, because of the popularity ICOs have at the moment, many try to take advantage and scam people.
At the moment, the entire ICO ecosystem is actually worth billions of dollars. At the same time, it is highly unregulated. ICO scams are more and more common because of how simple it is to build an ICO scam. Check out this article that shows you how to create the ICO scams in just one day or less. Also, the SEC created its own fake ICO to educate people about the dangers of ICO scams.
How Does The ICO Scam Work?
The principle behind all ICO scams is incredibly simple:
The scammer presents an investment opportunity, you pay for something and you never get your money back or you only get a portion of it.
Basically, you are tricked into “investing” in something that either does not exist or that has absolutely no chance of success. Unfortunately, tricking people to do this is much easier than what many think. Millions of dollars were already lost as people tried to make investments and ended up losing the entire available budget. An example can be seen in the LoopX ICO Exit Scam.
Keep in mind that in 2017 alone we had over 900 initial coin offerings launched. This generated revenue of over $5.5 billion. Even specialists would have problems with analyzing all of these and warning people about the scams that surely exist among them.
Signs The ICO You Invest In Might Be A Scam
Fortunately, identifying the ICO scams is done in the same way as you would identify most other online scams. What you need to do is resist the temptation to make the investment and first learn some things about the ICO.
Some really common signs that you are looking at an ICO scam are presented below.
· A Poor Online Presence
As you assess the ICO scam potential, you need to look at people that are behind the business. Honest ICOs will present a really detailed team breakdown. This includes developers, security experts, advisors, founders and all others that are involved.
Most ICO scams do know that this is something that is assessed by people so they create some fake profiles. This is where your research steps in. Visit the social media profiles of the team members and be sure that such profiles are actually listed. Check any prior association with an organization. See if the person actually went to the university mentioned.
A Great Tip: Use Google Chrome! Right click the image of the team member and perform an image search. This quickly looks for the image online and can identify scams that use generic photos or pictures of people that do not exist.
The honest ICO is going to encourage communication. It wants people to talk about the ICO and actually reach developers. Profiles have to be present on Facebook, Twitter, Telegram and so on. When assessed ICO does not offer a way to communicate and ask questions, it is a huge warning sign.
Common Sense Tip: Never invest in ICOs that present anonymous teams. There is absolutely no justification for that. Any ICO that has anonymous team behind it is a scam.
· Highly Exaggerated Solutionism
Blockchain technology is disruptive but it is not actually the best possible solution to all possible problems. ICOs take advantage of people’s lack of knowledge by presenting their ICO as a solution that is going to drastically change an industry. This is exactly what the SEC did with their fake ICO that targeted the travel industry.
A simple way to analyze the ICO and the viability of the solutions presented is to think if the existing cryptocurrencies can actually help the platform aim. If the ICO could operate with a cryptocurrency that already exists, there is no reason for new tokens to be created.
Warning sign: The claim that an ICO will or can disrupt an entire industry.
· Guaranteed Investment Profits
The ICO scammers that say they offer guaranteed profits are just lazy but this method does work. It always worked since people naturally want to know that their investment will generate a specific profit over time. Unfortunately, in cryptocurrency and anything blockchain related there is never a guarantee an investment will be profitable. When someone tells you something else, he/she tries to scam you.
Fact: Most ICOs that guarantee investment profits are actually Ponzi schemes (learn how these work here). The rest are just plain scams.
· Your Gut Feeling
If you are technical and you understand blockchain technology, cryptocurrencies and so on, there are many other signs that you can look at besides what was mentioned above. Some examples of articles that talk about them:
However, if you are a beginner you might not understand many of the technical aspects of the ICO. Scammers are really good at making things seem great when in fact all they are saying is fluff. With this in mind, using your gut feeling is always a good way to assess any investment opportunity you think about.
Do not invest in an ICO if:
- You feel what is presented is too good to be true.
- You do not understand how the ICO can be successful.
- You cannot find reports about people that already invested or at least places where people talk about the ICO.