{"id":31683,"date":"2018-02-23T12:38:45","date_gmt":"2018-02-23T20:38:45","guid":{"rendered":"https:\/\/cryptoslate.com\/?p=31683"},"modified":"2018-05-19T04:42:21","modified_gmt":"2018-05-19T11:42:21","slug":"seven-key-signs-ico-scam","status":"publish","type":"post","link":"https:\/\/cryptoslate.com\/seven-key-signs-ico-scam\/","title":{"rendered":"The Seven Key Signs of an ICO Scam"},"content":{"rendered":"

Initial coin offerings, or ICOs, present blockchain-based businesses with an innovative financial model that circumvents traditional funding process, allowing them to access startup capital generated through crowdfunding processes. ICO investors benefit from the opportunity to create significant amounts of profit while supporting the development of disruptive decentralized platforms.<\/p>\n

While the ICO ecosystem may be a multi-billion dollar industry, it\u2019s also mostly unregulated and ICO scams are becoming more common. This lack of regulation has allowed the market to be plagued by fraudulent platforms and “ICO exit scams,” leaving regulatory bodies around the world scrambling to develop a functional framework for control.<\/p>\n

\"LoopX
The LoopX project vanished at the beginning of the week when it took down its website and deleted its Facebook, Telegram, and YouTube channels without any notice.<\/figcaption><\/figure>\n

Exit scams are becoming more common in the ICO ecosystem. Recently, the LoopX ICO exit scam<\/a> resulted in the loss of more than $4.5 million USD of investor capital after its creators pulled a disappearing act.<\/p>\n

Many of these scams operate similarly to multi-level marketing or Ponzi schemes, such as Onecoin<\/a>, which duped investors out of $350 million USD and culminated in the arrest of the creators.<\/p>\n

While these fraudulent platforms succeeded in separating unsuspecting investors from their capital, they weren\u2019t particularly complicated, nor were they hard to spot as potential scams. Performing due diligence when assessing initial coin offerings is an essential element of the investing process, but is commonly overlooked by many investors.<\/p>\n

\"USD
More than 900<\/a> different coin offerings launched over the course of 2017, generating more than $5.6 billion USD<\/a>. Accurately assessing each of these ICOs would be a time-consuming task for even an expert analyst, and would be almost impossible for an amateur or intermediate investor. Source: Fabric Ventures<\/a><\/figcaption><\/figure>\n

There are, however, some visible signs that an initial coin offering may be fraudulent. Assessing each ICO with a set of necessary criteria can help you quickly eliminate potentially deceptive initial coin offerings effectively.<\/p>\n

If you\u2019re considering investing in an initial coin offering, it\u2019s critical that you perform your due diligence on the platform and ensure that it doesn\u2019t present any fraudulent characteristics. In this guide, we\u2019ll break down the seven most obvious red flags that an initial coin offering may be deceptive to help you make informed investment decisions and protect yourself from exit scams.<\/p>\n

1. Poor Online Presence<\/h2>\n

One of the essential elements to consider when assessing a potential ICO scam is the individuals behind it. A robust initial coin offering will present potential investors with a detailed team breakdown, listing founders, developers, advisors, security experts, and anybody else associated with the project.<\/p>\n

A \u201cteam page\u201d by itself, however, is now not enough to judge an initial coin offering as worthy. Many scam ICOs are now aware of the fact that their team composition will be closely scrutinized by potential investors and go to great lengths to create a believable fictitious team.<\/p>\n

\"Sabine
Sabine de Poncins, a French actress — NOT the CEO of Empire Card.<\/figcaption><\/figure>\n

The Empire Card ICO<\/a>, for example, was caught red-handed using an image of French actress Sabine de Poncins<\/a> as the CEO of the platform as \u201cPatricia Harrison<\/a>\u201d.<\/p>\n

Don\u2019t simply take a team page at face value. If you\u2019re going to invest capital into a project, it\u2019s important to look at the Linkedin page of the CEO and ensure that their profile lists the project. Check prior association with other organizations and educational institutions as these elements are relatively simple to fact-check against third party sources.<\/p>\n

If you\u2019re using a browser like Chrome, it\u2019s possible to simply right-click and image to perform a search for other instances of it online. This tool is particularly useful for identifying ICO team members and verifying their identities.<\/p>\n

\"\"
You can use this technique to ID check anybody<\/figcaption><\/figure>\n

A legitimate ICO will provide a wide range of social media links and places in which investors can interact with developers. Check the Facebook page of a project and assess its engagement levels; if your prospective ICO is worth anything, it should have a significant following.<\/p>\n

Slack channels and Telegram chats are also another great way of interacting with ICO developer and team members. If the ICO you\u2019re assessing doesn\u2019t provide a means of communicating with the development team and asking questions, then it\u2019s likely that it\u2019s fraudulent.<\/p>\n

Never invest in an initial coin offering that has an anonymous team, regardless of justification. If you spot an ICO with an anonymous team, it\u2019s most definitely a scam.<\/p>\n

2. Guaranteed Profits<\/h2>\n

Of all the red flags that identify a potential fraud ICO, guaranteed profits are the most obvious. There are no certainties in the blockchain ecosystem, and no proven, reliable, or guaranteed methods of generating profits.<\/p>\n

Promises of guaranteed profits come in many different shapes and sizes. Some platforms promise automated trading bots that deliver massive returns, while others promise returns to investors for \u201cstaking\u201d their coin. The latter is becoming more prevalent in the ICO ecosystem as interest surrounding the Proof of Stake consensus method increases.<\/p>\n

BitConnect<\/a> is arguably the most well-known instance of an ICO that promised guaranteed profits only to be revealed as a Ponzi scheme. Never invest in an ICO that promises guaranteed profits, as there\u2019s no such thing as a \u201cmagic bullet\u201d in the cryptocurrency market.<\/p>\n

\"\"
If the ICO you\u2019re assessing provides any tables that look like this, it\u2019s definitely a scam.<\/figcaption><\/figure>\n

3. Solutionism<\/h2>\n

While blockchain technology may be highly disruptive, it\u2019s not the ultimate solution to every single problem in existence. There are many initial coin offerings that present tokenization as a solution where it is not needed.<\/p>\n

While this may seem self-evident, strong marketing combined with the hype surrounding the industry can often lead potential investors astray.<\/h3>\n

Many initial coin offerings outline massive potential markets, presenting highly compelling arguments that their blockchain-based solution will massively disrupt incumbent industries and generate untold profits. You need to ask yourself, however, whether using blockchain-based loyalty programs to launch a galaxy-spanning space empire<\/a> is really a feasible application of blockchain technology.<\/p>\n

\"Orioncoin\"
Orioncoin wants to create a type I Kardashev with blockchain loyalty reward points. Unlikely.<\/figcaption><\/figure>\n

When assessing an ICO, it\u2019s important to consider whether the aim of the platform could be achieved using existing cryptocurrencies. Even platforms such as Steemit<\/a>, which boasts a modicum of success, could probably operate with existing cryptos.<\/p>\n

4. Empty GitHub Repositories<\/h2>\n

An empty code repository is a telltale sign that the ICO your considering is a lazy ERC20 token and doesn\u2019t offer anything groundbreaking. Most ICOs propose open-source solutions that make it possible for potential investors to assess their code via a repository link like GitHub.<\/p>\n

If your ICO links through to an empty repository or doesn\u2019t provide a link at all, then it\u2019s more than likely fraudulent.<\/h3>\n

By providing links to their code repositories, ICOs allow individuals with programming knowledge to audit their development process and determine whether the proposed solution is valid or not. Checking that the underlying technology that drives a blockchain solution is well-organized and functional is critical when assessing initial coin offerings.<\/p>\n

\"\"
The MyCrypto wallet Github as an example of a repository under active development<\/figcaption><\/figure>\n

It\u2019s not necessary to be a coding wizard to check the GitHub of an ICO. Simply checking that the repository is active and is receiving regular updates should be enough. If you can\u2019t tell whether the code provided by a platform is legitimate, there are many forums on social media sites such as Reddit that deliver a basic primer of the finer points of technical ICO code assessment.<\/p>\n

5. No White Paper, Bad White Papers, or Blatantly Plagiarized White Papers<\/h2>\n

A white paper is the most important element of any initial coin offering. In a white paper, an ICO will present an outline of what it plans to achieve, a breakdown of how the technical aspects of the platform function, and delineate its token distribution model.<\/p>\n

If an ICO doesn\u2019t provide a white paper, then it\u2019s undoubtedly a scam. Simply providing a white paper, however, is not a clear sign that an ICO is legitimate. Some fraudulent initial coin offerings pay online freelancers to write up hilariously bad<\/a> white papers under the assumption that providing a PDF white paper document is enough to fool most investors.<\/p>\n

\u201cHuge states were made on a fairly simple trading algorithm. But he “came to an end” with the advent of the Internet and a massive transition of exchanges to electronic commerce. As a result, people occupied robots\u201d<\/p><\/blockquote>\n


\n<\/i>From the comedy gold that is the Arbitrage Crypto Trader<\/a> ICO. \u00a0Do not invest.<\/p>\n

White paper plagiarism is becoming increasingly common in the ICO industry as well. The DADI ICO was called out earlier this year for plagiarizing their white paper<\/a> from the SONM whitepaper by the SONM creator himself.<\/p>\n

\"\"<\/p>\n

While the DADI team formally addressed<\/a> the controversy and admitted that they did, in fact, \u201clean heavily\u201d upon the SONM white paper, the issue of plagiarism in the ICO ecosystem is extremely commonplace. If you\u2019re considering investing in an ICO, it\u2019s worth searching for a few passages taken from its white paper to ensure it isn\u2019t sourced from another project.<\/p>\n

6. Shady Premines<\/h2>\n

Cross-referencing the data points a project provides the supply schedule of tokens that will be released is a powerful way to discern the true intent of project leaders. While the mining structure of a token isn\u2019t a foolproof method of identifying fraudulent platforms alone, it can be used with the other techniques outlined in this guide to assess the legitimacy of a project.<\/p>\n

Premining is a common practice in the initial coin offering ecosystem that refers to tokens that are made available to a small group of individuals before the project or crowdsale goes live.<\/h3>\n

In many cases, this technique is used to reward project contributors, developers, and investors. Used correctly, this technique is fair, but if the total amount of tokens reserved for premining is disproportionately large it\u2019s definitely cause for concern.<\/p>\n

The Paycoin<\/a> ICO, for example, reserved the majority of tokens generated for the development team and resulted in the founder being found guilty of operating a $9 million dollar exit scam. Premining allocation is extremely important when assessing ICO veracity.<\/p>\n

If an initial coin offering favors the development team or founders with an imbalanced amount of tokens, then it\u2019s worth considering whether the project is attempting to maximize personal gain for team members as opposed to maintaining the stability of the proposed blockchain network over the long term.<\/p>\n

7. No Roadmap or Unrealistic Roadmaps<\/h2>\n

Initial coin offerings will generally provide potential investors with a detailed list of what they have achieved thus far in the development of their project, as well as what they plan to achieve, in the form of a roadmap. If a project doesn\u2019t provide a roadmap at all, then it\u2019s highly likely that they don't have any plans for the future apart from \u201cexit\u201d and \u201cprofit\u201d.<\/p>\n

\"ICO
ICOs that seem like they are too good to be true will probably end up here.<\/figcaption><\/figure>\n

A roadmap should be realistic. If the ICO that you\u2019re assessing hasn\u2019t yet developed a working platform prototype or any code at all, then it\u2019s highly likely that it is an exit scam.<\/p>\n

Moreover, if the roadmap includes plans of using ICO capital to develop a prototype or makes any references to future token price, it\u2019s probably a scam.<\/h3>\n

No roadmap, no code commits to a repository, and a poorly-written or nonexistent white paper are the unholy trinity of a fraudulent initial coin offering. If the ICO you\u2019re considering investing in offers an unrealistic future roadmap and has not achieved anything significant apart from a PDF and a WordPress website, don\u2019t invest.<\/p>\n

Final Tips<\/h2>\n

Ultimately, the sharpest tool for cutting through the hype that obfuscates scam or fraudulent initial coin offerings is common sense. If an ICO appears to be too good to be true, it probably is.<\/strong> Maintaining a skeptical perspective when assessing initial coin offerings will help you to avoid getting scammed.<\/p>\n

Checking for the key signs identified in this guide will help you identify strong investment opportunities in future and avoid losing out to blockchain fraudsters.<\/p>\n","protected":false},"excerpt":{"rendered":"

Initial coin offerings, or ICOs, present blockchain-based businesses with an innovative financial model that circumvents traditional funding process, allowing them to access startup capital generated through crowdfunding processes. ICO investors benefit from the opportunity to create significant amounts of profit while supporting the development of disruptive decentralized platforms. While the ICO ecosystem may be a […]<\/p>\n","protected":false},"author":25,"featured_media":32632,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[120],"tags":[],"post_folder":[],"acf":[],"yoast_head":"\nThe Seven Key Signs of an ICO Scam<\/title>\n<meta name=\"description\" content=\"ICO scams are becoming increasingly common. 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