How to Save Yourself from a Scam ICO


There are several mechanisms and
technologies being implemented by blockchain-enabled systems to provide users
with the privacy they expect. Transparent computing is possible by making use
of a public ledger and a peer-to-peer decentralized network. Blockchains are
essentially distributed ledger systems. The database is not centralized, but
divided into several parts and stored in an infinite number of places
(potentially). This ensures that a blockchain environment is not a single point
of failure. All transactions are written into this ledger and these
environments ensure that no manipulation takes place. While other forms of
technology may not provide the privacy we seek, blockchain environments may
finally be able to allow users to be in control of their own information, and
ensure its security. There are still several security breaches and privacy
issues, but the future is bright. The major problem
with blockchain technology is that there is no regulatory committee to govern
blockchains. This has led to several scams.
Initial coin offerings (ICOs) present a
financial, blockchain-based business model. They generate capital through
crowdfunding to kick-start the start-up process. Both the investors and the
developers of the project are benefited by this process as investors reap huge
profits as the project grows, while developers are granted funds to aid in the
development of their decentralized platforms. The number of ICOs in the market
is immense and nearly 5-6 new ICOs are finding their way into the market on a
daily basis. While the ICO ecosystem is billion dollar industry, it has its set
of flaws. As is the case with blockchain technology, there is no committee to
regulate and govern blockchain environments. There are several cases of ICO exit
scams which have left investors in the cold and penniless. The market is
plagued with numerous fraudulent platforms and it is becoming more common by
the day.
It is necessary to conduct a quality Due
Diligence for each and every ICO one may wish to invest in. While this may not
be possible for a majority of investors due to a lack of resources, it is not
tough to spot a fraudulent ICO. Experienced investors may hire a specialist to
research and prepare reports on potential ICOs. There reports are detailed and
curtail all the risks which may be involved in investing in a particular ICO.
There are certain institutions like Crypto Asset Rating Inc. which provides its
subscribers with independent ratings for several ICOs. Scam ICOs may succeed in
separating the generated capital from investors and absconding, but it is
usually not that tough to spot a fake ICO from a bunch of authentic ones. There
are several signs that an ICO may be a scam and each investor should access an
ICO on the basis of a set of criteria. If an ICO looks too good to be true,
steer clear! Common sense is very important when investing in any profitable
opportunity. Maintain a sceptical approach and do not fall for any impossible
scheme which seems amazingly possible. Here are a few tips which should help
you save yourself from a scam ICO!
ICOs with a Poor Online Presence and Following
An authentic initial coin offering will
provide investors with a detailed list of their team. All ICOs generally
display the names of their founders, advisors, developers and other members
integral to its creation and maintenance. There are several ICOs which create a
fake list of team members which seem authentic. Scam ICOs understand that
investors will look at the team page of an ICO and make a decision based on the
credibility of their team members. These scam ICOs go to great lengths to
create a list of team members which seem credible. If the list of team members
is credible and the online presence is low, it may mean that the ICO is
credible. There are ICOs like the ICO of Crypto Asset Rating Inc. which has an authentic and qualified team yet has a poor online
presence. This ICO is focussed on delivering results and does need to sell its
token to audiences on social media as the product speaks for itself. They would
rather spend time and energy in the betterment of the project.
Investors are advised to conduct a
detailed research procedure and look through the Facebook page of the ICO and
the LinkedIn page of the founder/founders and other important team members. Be
careful while accessing the authenticity of an ICO on the basis of the LinkedIn
pages of their team members. There are several scam ICOs that have created fake
LinkedIn pages to attract audiences. AriseBank is an ICO that comes to mind. It
has been closed by the SEC after a 600 million USD fraud. The CEO, Jared Rice
created a fake LinkedIn page according to which he is also the CEO of a Dallas
marketing firm, Dotoji. The address provided for the firm is a residential home
in Dallas!
If the profile of the founders
seems to be a scam, steer clear. Empire Card is an ICO which used the image of
Sabine de Poncins (a French actress) as their CEO under the name of Patricia
Harrison. Never invest in an ICO with an anonymous team!
There is No Such Thing as
Guaranteed Profit
If an ICO guarantees profits,
it is most likely a scam. If there was a guaranteed method of generating
profits on blockchain systems, everyone would be a millionaire. There are
several platforms which promise automated trading bots that eventually rake in
massive amounts of money. Other platforms promise a return to investors for
staking in their coin. The Proof of Stake consensus is growing in popularity
and the latter mentioned method of profit raking is more prevalent. Of the many
examples of such fraudulent ICOs, BitConnect strikes the mind and is a
well-known instance of an ICO guaranteeing profits. There scheme turned out to
be a Ponzi scheme. Remember, there are no certainties and no proven or reliable
methods to sustain profits in blockchain environments.
Empty Code Repository ICOs are a
Strict No!
Most ICOs have an open source
code. This allows investors to access the code and check it out. This is
usually provided through a repository link which makes it possible for
potential investors to take a look. An empty code repository hints at the ICO
not providing for anything worth taking note of. Although many investors may
not have the knowledge to access the code being used, some do. Investors with
programming knowledge can track the development of the platform and gauge its
validity. The underlying technology needs to checked and validated. There are
several forums like Reddit which provide the ethos of a project and enable
investors to get a working idea of the project. An active repository receiving
regular updates generally suffices an investor’s curiosity.
A Fraudulent, Bad, or Plagiarized
White Paper is a Strict No! Stay Away from Such Projects!
An initial coin offering sans
a whitepaper is most definitely a scam! A whitepaper describes the entirety of
the project details, from what the project plans to achieve, to what it offers
and a technical breakdown of the various aspects of the platform. However,
providing a whitepaper is not enough. There are several fake ICOs which copy
the whitepaper of other ICOs or implement the same concepts and just change the
structure of the wording. Other ICOs may write a whitepaper just for the sake
of it and not make any sense. Just providing a whitepaper is not enough and
investors must read through the document thoroughly to establish its
legitimacy. The DADI ICO was a scam ICO and had copied the whitepaper of the
SONM ICO. Interestingly, this was done by the creator the SONM ICO himself! One
must be very careful and must establish the sanctity of an ICO whitepaper
before investing in it.
Shady Pre-mining Techniques May
Hint at Fraud
The supply schedule of
tokens must be reviewed and cross-referenced to establish the authenticity of a
project. The true intent of project leaders can be gauged by this. The mining
structure of a project does not necessarily hint at an ICO being a fraud but it
does certainly assess the legitimacy of the project and its future prospects.
Pre-mining techniques are used to reward contributors to the project and large
amounts of tokens are generally reserved for this purpose. While this may seem
fair, if the proportion of coins reserved for this purpose seems to be too
large, it is a cause for concern.
If an initial coin offering
favours the development team and a large amount of tokens is reserved for them
and the founders of the project, it is more likely than not that the team is
looking to extract personal gain from the project. The stability of a project
in the long term depends on factors like these and this is often overlooked by
investors. The Paycoin ICO reserved a majority of tokens for their founder and
development team and this resulted in a scam worth 9 million USD. It is
extremely important to access the authencity of an ICO on the basis of
pre-mining allocation.
Projects without a Roadmap or Unrealistic Roadmaps
are more likely than not of being a Fraud
A roadmap generally encompasses the work of the
development team, what they have achieved so far, what they plan to do in the
future and their eventual goal, along with certain updates. If a project does
not have a roadmap, it is likely to be a fraud. A roadmap shows the direction
in which an ICO plans to head in and sans one, it can be expected that the team
plans to abscond after obtaining profits. As mentioned before, an ICO which
seems too good to be true probably falls into this this category. ICOs without
a whitepaper, roadmap or an empty repository are likely to be a fraud. There
are some ICOs which claim to be working on a roadmap but never come up with
one. Never trust a platform which reeks of fraud, as no one can save you if you
transact virtually on the internet. An unrealistic roadmap which guarantees
profits may be a fake as well. Assess the content of the roadmap carefully
before making any decision.
Conclusion
Unfortunately,
the market has seen hundreds of cases of fraud and absconding parties. The lack
of regulation has hit several investors hard. The above listed methods will
help an investor differentiate between authentic and scam ICOs. Although one
can guarantee this, there are other methods to help an investor remove the
wrong from the right. An unbiased rating system will serve the purpose of
segregating fraudulent companies from authentic ones.
Crypto Asset
Rating Inc. (CAR) is a United States based cryptocurrency asset rating agency.
They have created an algorithm to determine the rating of cryptocurrency asset
issuing companies. Rating a project on the basis of the risks involved in
investing in it and the long term scope of the project is helpful. Investors
could make use of this rating to determine which projects are worth investing
in. Although this does not serve as a cornerstone around which investors should
create an investment plan, or abide to, it is certainly helpful. It does not
guarantee the competence of an investment opportunity but guarantees its
sanctity. In the end use your common sense and do no trust your heart! Do what
your mind says after conducting an extensive research procedure and you should
be fine.

Crypto Business World
CBW - External Analyst
INDIA