How to Recognize a Fraudulent ICO (Initial Coin Offering) in 2019
2017 was the year that marked a huge change in the world of cryptocurrencies. Not only did their prices exploded, thus bringing more attention to them and raising awareness about them, but it also brought a lot of popularity to certain trends. One such trend was ICO (Initial Coin Offering).
ICOs are similar to IPOs, only they are done with cryptocurrencies. During IPOs, new companies decide to sell their stock to the public in order to get funding for further development. While these stocks are not particularly valuable at the time, their price can grow tremendously once the company starts achieving its goals. As the firm continues to grow and develop, it becomes more valuable, and the same is true for its stocks.
The same principle is applied to ICO as well, only the project sells coins that may or may not become valuable in the future. However, an additional big difference is that ICOs can also be scams designed to trick unsuspecting investors and steal their money. Because of this, ICOs went almost entirely extinct in 2018, as investors started realizing that investing in them is too risky.
The situation ended up being so bad that some estimates claim that around 80% of all ICOs to date were scams and fraud. As a result, investors stopped investing, and while this did protect them from losing funds, it also prevented legit ICOs from becoming successful, and companies that started them could not develop further. Here are some of the signs that are a clear indication that the ICO is fake, and you should stay away.
1) Pay Attention To Their Websites
In theory, ICOs are performed by new companies that wish to grow and become successful businesses. They try to show that they are professional and capable, right from the start. As such, they will pay extra attention to creating and organizing their websites, as the site is the face of the company. This is where people go to learn about it and to determine if it is worth their support.
When it comes to ICO scams, websites are often prepared in a rush, which can be seen relatively quickly and easily. Even if fake ICOs invest a lot into making their site look professional and legitimate, there are always indicators that something is wrong, like grammar problems, lack of documents or detailed information, links that do not function properly, and alike.
2) A Development Team That Does Not Exist
Any real company that wishes to achieve something needs to have a proper team of developers that will fix problems and work on its products. The same is true for ICOs. However, fake ICOs run into a problem here, as they are often performed by a small group of people, who are in no way a proper development team. Since they have to show who works for them in order to gain investors' trust, they often end up going to social media and stealing photos of real developers.
They would then post them on their website and hope that none of the people whose photos were stolen doesn't realize what is going on. In the meantime, scammers would go to social media and make entire fake accounts using the stolen information in an attempt to trick their investors. They list numerous made-up projects in developers history, as well as fake working history. It is easy to find out the truth about them as you can just do a quick Google search to see if there is any truth to any of this. However, these scams manage to trick people as they often never bother to do a proper background check.
3) Stolen Whitepaper
The whitepaper is likely the most important part of ICOs, but also of ICO scams. It displayed information about the firm, its goals, and methods of achieving them. Real whitepapers are always original, which is why finding a copied one is a clear mark that you are dealing with a scam. And, while several real projects may have a similar whitepaper, they are never identical.
On the other hand, scammers do not bother with creating their own ideas. Otherwise, they would have something to go on and create a proper business. Instead, they just copy the entire whitepaper and hope for the best. In other cases, they may try to write their own, which is often riddled with broken English, false claims, vague promises of huge profits, and alike.
4) Vague Goals And Unrealistic Promises
Investors that wish to support a new company must always pay attention to two things, which is real, precise, and clear goals, as well as realistic investment plans and promises. Considering that ICOs are often created in a hurry, none of these things are properly planned out. They are also not based on real plans and calculations, with no hope for any kind of future.
As a result, they remain vague with fake promises. Their goals and different steps in development are only hinted at, with no proper plans on how to achieve anything, and they always tend to cause hype, rather than provide a real roadmap. They often even release the coins and seem like the real thing, until you realize that you do not know what to expect next. After that, investors become suspicious, and scammers recognize that it is time to disappear.
5) Lack Of Authorization
ICOs are not being conducted by themselves, and they depend on an entity such as a company in order to be performed. This allows investors to check if the ICO is real, by checking out their registration. This is also something scammers hope investors will not do, as they cannot properly register a fake project.
There are other signals that the project you are dealing with might be a fake, but if you notice anything that we mentioned, it should be treated as an immediate red flag. ICOs always promise deals that are too good to be true, and while it is easy to get excited about such offers, it is also extremely important to remember and check whether the project is trustworthy before jumping on the opportunity to make a profit.