The complete guide on ICO scam

Initial Coin Offering (ICO) is similar to Initial Public Offering (IPO). ICO sells a stake of the initial crypto launch. But unlike IPO, the project initiator exchange in-house “tokens” for common cryptocurrencies in an ICO. The tokens might grow in value after the project is successfully launched. In this way can the investors get returns. ICO size kept growing in recent years.

Source: Coin Telegraph

High-risk ICOs

Like any investments, there are never promises that the investors will earn money from an ICO investment, no matter how initiators boast about their projects. In fact, the price of around 28% of the survived ICOs fell by more than 80% half a year after ICO date. Besides, ICO is so new that the regulations are inadequate. 80% of ICOs conducted in 2017 were scams. In an ICO scam, the developers cheat investors by “building” a fake project.

 

Big ICO scams

Project Country Amount Victim Indicator
Pincoin and iFan Vietnam US$660 million 32,000 Profile cheating*
OneCoin Dubai Multibillion-dollar N/A Ponzi scheme**
Bitconnect The U.S. US$2.5 billion N/A Ponzi scheme
Plexcoin U.S. US$15 million Thousands Ponzi scheme
Centra Tech The U.S. US$32 million N/A Profile cheating
Cabbage Tech The U.S. N/A N/A High return***
MIROSKII The U.S. US$833,000 N/A Profile cheating
BTC Global South Africa US$80 million 28,000 Ponzi scheme

*The profile of team members is fake

**The U.S. Securities and Exchange Commission (SEC) defines a Ponzi scheme as “an investment scam that involves the payment of purported returns to existing investors from funds contributed by new investors.”

***The developers promised unrealistic high returns

Sources: Coin Telegraph (12), The Block CryptoCCNTechCrunchCNBCFinderBloomberg

Although ICO investments are of high risk, the investors are tempted by the seemingly “huge profit return” projects. So how do we identify if an ICO project is a scam or not? Generally, we need to check these key elements when we are evaluating an ICO project – risk assessment, technology, white label, and regulation compliance.

Risk assessment

We should assess the risk of a project appropriately before investing. If a project developer promises that you will get a huge profit from the investment, it is likely that it would be an ICO scam. No one can know the profit of a project beforehand, but a fraud can always boast unrealistic returns. The Bitconnect initiators promised astronomically high returns, only turns out to be a scam.

The credibility of the development team is essential. MIROSKII project is a textbook profile cheating ICO scam. The profile of the members fake. Even the photos of the members are phoney. To tell the truth of a profile, we can always check LinkedIn. Usually, the developers would claim that they have participated in some well-known successful projects or cooperated with big brands. To verify, we can check the release of these projects on the official website of the big brand. Centra Tech project developer claimed that they cooperated with Visa so that users can convert their cryptocurrency to cash. But no such releases can be found in Visa website. Later Visa denied this statement. Last but not least, if half of the team members are anonymous, the team can be suspicious.

Technology

We should check whether blockchain technology is applied in the ICO project or not. Some lazy frauds would copy or build a terrible website. For example, OneCoin website is strewn with typos. The OneCoin project never issued a legitimate decentralized cryptocurrency. These are obvious indicators that this project would be a scam. Besides, the codes of the smart contract of an ICO project should always be published to GitHub. If not, we should be careful about the genuineness the project.

Regulation and compliance

Different countries have different regulations on ICO. For example, China bans all ICO transactions; the SEC declared that it would apply Federal Laws to ICO projects; Venezuela launched oil-backed Petro tokens, etc. We need to know the regulations well and make sure the ICO projects that we are going to participate are regulation compliance. For instance, if an ICO project is based in China, it is definitely illegal.

White paper

Usually, the white label of a project describes what the project is, solutions to possible issues, commercializing solutions, etc. We should always study the white label of the project carefully before investing. Be sure to raise vigilance if the white paper is unoriginal or of poor quality,

ICO investment can be lucrative indeed if we choose the right project. The suggestion is to wisen up and never easily believe a promise of profit easily. Always be very clear about the projects you are investing in.