In our world, especially with the development of the IT sector, there is more fraud. Criminals operating in the real world are now going virtual as well because sums of money or cryptocurrencies are also high there. This also applies to the blockchain sphere, especially to the ICO projects, the modern format of crowdsale, in which startups are invested by people or companies in order to support their future activities.
Many young investors or simply interested in this or that project often fall into the ICO scammers' traps. There are several reasons for this:
- They like the idea, and they are ready to invest money in it. And when it will be realized, they will use its services.
- They like the idea and think that they can make “good money” later by using its services or selling coins of this ICO, at a price higher than the one they paid at the beginning.
- Naive people believe in advertising, promises and got hooked, hoping that without doing anything and simply investing money somewhere you can quickly get rich.
- Inexperienced investors crave big money and make rash chaotic investments.
- People who are not professionals don’t read the white paper of the company, don’t look for additional information, don’t check the existing one.
Related: First ICO approved in France
But not always failed ICOs are deliberate frauds. The reasons for failures can be:
- The first is, of course, intentional fraud. The so-called developers simply go to the ICO to quickly make money and disappear.
- Victims, which happens quite rarely. The company wants to create a product, collects money, but in the end, they are hacked and the money goes into “bad hands”.
- Weak project. The project was initially poorly thought out and could not redeem itself. Therefore, it doesn't live up to expectations of people who for some reason thoughtlessly invested in it.
- Bad management. The heads of the company or startup spent more money on marketing than on the project itself.
How to understand whether the given ICO is a scam or a promising project?
- A very important factor is the people, the team that stands behind the project. Sometimes it happens that not all team members know about evil intentions to take your money, so we advise you to get acquainted with the CEO in more detail. Check: do these people exist in reality? Check their photos, accounts in social networks. You should also pay attention to when these accounts were opened. See what these people did before this ICO? How much their past projects paid off. Are they really engaged in these projects or their names are fake? Maybe CTO of the company actually have only a philological incomplete education and can’t distinguish HTML from Solidity. Or maybe this is a group of school teachers of physical education who dressed in black tailcoats during a graduation party and put the photo as a meeting with investors! Everything is possible.
- No matter how boring it is, read the white paper of the project if it is available. If you still didn’t find it, then I don’t think that this project should be especially trusted. Check the percentage of plagiarism in this document. Perhaps they had forgotten to warn in advance another project’s technical writers and borrowed it. And also pay attention to the amount of “water”, abstract expressions in the text. Proposals must be interrelated and understandable. The main thing is the accuracy of what is said in this document.
- View all the photos again. In the 21st century, Photoshop can use quite a lot of people, and to make a fake photo qualitatively is not so difficult. Recall the case when the scam project DeClouds announced its partnership with UBS, a Swiss bank (they even provided a photo). But the picture was fake. Only bank employees were present in the photo, and the DeClouds team was added using Photoshop.
- Don’t forget about the website itself. Don’t be deceived by the fact that it has a good design, layout, animations, cute pictures. For a couple of tens of dollars, you can buy a good website theme and hosting. It is better to check when the site was created. Maybe it was a week ago before the launch of ICO? If so, then it is better to be more attentive to this situation. Also, check out the old versions of the website. For example, you can use webarchive.org functionality for this.
- You can also check the team by IP-address. For example, in the history of the largest ICO scams, the Opair project, which disappeared with 1500 BTC ($6 million), tried to repeat the same trick using the same IP-address. So remember, criminals love to return to the crime scene.
- Look at the MVP. Good projects put their links to GitHub so that there is an opportunity to see the project’s development process.
- You can dig deeper: check the availability of the KYC procedure (identification of the counterparty), multi-signatures (transaction reversibility), Escrow (transit account to guarantee the transaction),
- Ask yourself: do we really need this project? Does it solve some important problem? How unique is it? Does it need ICO? Do they need the tokens and the use of the blockchain? Maybe it is a stall, which is selling cotton candy, and most likely it will not need a blockchain.
- Pay attention to the distribution of tokens. How many percents of all coins will be in circulation, and how much will be in developers’ hands. If the creators of the project will have more than 50%, are these tokens frozen and will they not be defrosted for several years or not?
- Ask as many questions as possible to the ICO project’s team about the implementation, startup’s technical aspects, and its future. Do it on the open platforms, or in thematic chats. If this project is a scam, then the authors will respond either evasively or abstractly. They may not even answer your questions.
If you really decided to make a large or even a small investment, then be sure to get acquainted with the history. Read about blockchain, cryptocurrency, their differences, and functionality. You don’t need to become a super professional. Just be minimally technically savvy to not be fooled. As we have said, ask as many questions as possible: to your programmer-friends, or in open forums. Nowadays, there are many people willing to talk and share their own experience. Ask about the economic side. After all, it's all about money. Understand the basic principles of creating financial pyramids, so as not to fall for the same tricks as people did in the past. Learn more about ICO. For example, in this article, you can get acquainted with the top ICO scam projects. And always be in the center of the news flow.