While investments in (ICOs) Initial Coin Offerings can be incredibly lucrative, it is an exceptionally risky endeavor. Regrettably, we have been experiencing a proliferation of ICO scams which makes it crucial for investors to be able to identify the warning signs and can take action in order to protect their investments. This article lists the signs of an ICO scam and offers steps to protect you from becoming a victim. For additional security tips, you can also read this guide on safeguarding your Bitcoin.
Understanding ICO Scams
ICO scams are fraudulent acts that tend to lure investors with high-return projects but perform no real work. These scams may be sold in many shapes and forms (see the previous section) but sometimes are disproportionately wide or unrealistic promises.
Common Red Flags of ICO Scams
1. Unrealistic Promises
A company that promises large returns with little to no risk is probably trying to con you out of your money. This is one of the most obvious warning signs. Investments always carry a risk, otherwise, it would be an investment scam because any project cannot guarantee you profit on your funds.
2. Lack of Transparency
A concern voiced in numerous publications is that the number of details released by many ICO projects pales when compared to those you would read about a traditional startup. If a project isn’t telling you who they are, what technology they plan to use and how long it will take them, walk away immediately. In a bid to deceive the targeted individuals, fraudsters typically pass incomplete or incorrect information.
3. Anonymous or Unverifiable Team
Transparency and verification of one’s ambitions should be inherent in any trustworthy ICO, and without it, the project is likely to be fraudulent. If the team members are anonymous or you don’t find any information about them, it is another sign. In all circumstances, refer to the professional networks of the team members, specifically LinkedIn.
4. No Working Prototype or Product
A trustworthy ICO will have a functioning prototype or something similar and a well-thought-out white document outlining the foundations of what it is doing. If they are unable to bring a product or the white document is filled with gibberish without demonstrating target worth, it is a significant warning sign.
5. Aggressive Marketing Tactics
One of the red flags that are typical for scam ICOs is an aggressive advertisement leading to FOMO (fear not missing out), familiar with all kinds of Ponzi schemes. If you are rushed into a decision by the advice, then they most likely just want your money.
6. Unusual Token Distribution
Watch for how the tokens are distributed. Having a big chunk of tokens owned by the team or just a few people could be an indication that it might follow this pump-and-dump path where they artificially inflate its price to sell off their stake at a profit.
7. Poorly Written Whitepaper
It is the most important document with all the project’s goals, technology and roadmap explained into detail. A badly written whitepaper, with hazy details or some common errors is considered as one of the most important red flags for any ICO.
8. Lack of Regulatory Compliance
These ICOs follow regulatory requirements can be registered with the government. If a project is not addressing its regulatory status or seems to be in that legal grey area, avoid at all costs.
How to Avoid ICO Scams
1. Conduct Thorough Research
Do your research on any ICO. Learn about the project and its team, including the technology that relies on the token/coin you are investing in. Do full research on the whitepaper. Try to find out where it has been covered and discussed in reputed forums about the team, etc.
2. Verify Team Members
Validate their identities and experience by checking professional networks such as LinkedIn. Please contact them directly to get some answers and see if they are legitimate or not.
3. Check for a Working Prototype
Make sure the project is a real working prototype or at least well outlined how to come up with such technology. Do not invest in projects that are still only at a concept level and have no proof.
4. Analyze Token Distribution
Check out the Token distribution plan for some consideration of fairness and transparency. Avoid projects where a small group holds a significant portion of the tokens.
5. Look for Independent Audits
Following an independent audit, some scams are legitimate and are audited to ensure security features translate with technology. Find audit reports or third-party reviews that show the project is what it claims to be.
6. Beware of Hype and FOMO
Do not let hype or FOMO lead to your investment choices. Spend some time exploring the project and understanding what really makes it valuable before investing.
7. Use Reputable Exchanges
Buy ICO tokens on official cryptocurrency exchanges with high listing standards. Stay away from shady and unregulated token sales.
8. Stay Informed
Subscribe for the latest news and trends in cryptocurrencies. Participate in discussions, join online communities of people who work similarly to yours and pay attention to reputable news sources.
Conclusion
ICO scams are a viable risk to the cryptocurrency market; however, in-depth awareness and research will only prevent people from falling for these fraudulent schemes. Watch out for red flags of milestones, such as unfulfillable promises, non-disclosure, and proofless team members.
Check the project backgrounds, identify how tokens are distributed, and avoid over-the-top promotion. By keeping these things in mind, you can ensure that even as an investor, you know all the weapons to snap through ICO wood.
