Fool Me Once, I'm Broke: How to Spot an ICO Scam

 

 

Bitcoin Global News (BGN)

March 05, 2018 -- ADVFN Crypto NewsWire -- Initial coin offerings enable blockchain-based businesses to float an innovative crowdfunding model that bypasses traditional startup funding. ICO investors hope to make large profits while supporting the launch of a disruptive decentralized platform.

There were 900+ ICOs launched 2017, generating an astounding $5+ billion USD. But the ICO ecosystem is largely unregulated and investor scams abound. In February, the LoopX “project” vanished, taking down its website and deleting its Facebook, Telegram, and YouTube channels without any notice, leaving investors with a loss of $4.5 million USD.

The first step in judging an ICO’s legitimacy and worth is evaluating the website. If you think that you are reading a fluffy website where the copywriter seems to be throwing around ICO buzzwords but not really tell you anything, well, you are. This kind of ICO website will attempt to force blockchain technology onto a use case that does not require decentralization. Ask if what is being touted could be done with Bitcoin or Ethereum instead. If you’re not sure, consult with a trusted blockchain expert or at least study what is being said on Reddit.

If the website seems genuine and the coin use case passes muster, next dive into what Reddit users are saying about the whitepaper. Scam ICOs pay online freelancers to write up painfully bad original or blatantly plagiarized whitepapers under the assumption that providing a PDF whitepaper document is enough to fool some prospective investors. Confirm that the whitepaper is not plagiarized, and that it convincingly outlines what the ICO plans to achieve, with a clear breakdown of the technical aspects of the blockchain technology, and a clearly delineated and fair token distribution model. Google at least a couple dozen excerpts from the whitepaper yourself to ensure that it isn’t sourced from another project. Confirm that there is a lot of talk on Reddit about the whitepaper and that the talk about the distribution model is intelligent and encouraging.

Also look for any talk on Reddit about the ICO’s blockchain work on GitHub being cloned from another existing project. Cloned code is a sure sign of an ICO scam. GitHub allows individuals with programming knowledge to audit the merits of an ICO's development process. But you don't have to be a code jock to check that the repository is active and is receiving regular updates. GitHub activity for the ICO’s blockchain project must show a lot of activity over many weeks, with the project moving forward towards actual implementation of the idea. Look for a GitHub developer team that is pushing hard each and every single day.

If you have gotten this far in evaluating the legitimacy of an ICO, the next step is to confirm a substantial Telegram community around the ICO with many people asking questions and engaging with the admins/founders. Legitimate ICO’s have a wide range of social media links and places in which investors can interact with developers, including active Facebook and Slack engagement, with the investor community around a legitimate ICO will be especially active on Telegram. If the ICO you’re assessing doesn’t provide a Slack and/or Telegram page communicating with the development team and asking questions, it’s fraudulent.

The last red flag to look for before investing in an ICO is presentation of a believable yet fictitious ICO team. Anything less than a detailed team breakdown, listing founders, developers, advisors, and security experts, is highly suspect. Check LinkedIn to see that each team member has relevant experience with at least one being a veteran with prior blockchain startup experience. Lastly, ask for and get a Skype call with one of team members and get to know them personally before investing in an ICO.

 

 

By: BGN Editorial Staff