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How to Avoid ICO Scams

Initial coin offerings (ICOs) have attracted a lot of attention in the recent past as a highly lucrative venture for investors, and as a faster way for crypto startups to crowdfund for their projects. In 2018 alone, ICOs raised over $11.4 billion.

While ICOs can be a blessing to startups, they are inherently risky for the investor. Since ICOs are not regulated, they are vulnerable to fraud. In this article, we take a look at common ICO frauds and some of the ways you can avoid ICO scams. Let's dive and explore:


Common ICO scams

• Exit Scams

Exit scams occur when blockchain-based startups or companies disappear with investors' money during or after an Initial Coin Offering.
In 2018, Pure Bit, a South Korean exchange, disappeared after raising $ 2.8 million in Ethereum from investors. LoopX is another company that disappeared with $ 4.5 million worth of investors' money.

• Ponzi and Pyramid Schemes

Ponzi schemes are blockchain-based (in the case of ICOs) projects that promise unreasonable returns with little risk to investors. Pyramid schemes, on the other hand, encourage the recruitment of new investors to maximise your profits. Think, multi-level marketing or network marketing.

Both Ponzi and Pyramid schemes focus more on recruiting new people than on the actual project.

• Pump and dumps

Pump and dump schemes occur when fraudsters use messaging apps, social media and other online forums to manipulate the prices of cryptocurrencies.

How pump and dump schemes work is a group of people generate hype around a specific token to entice its purchase. Within a short time, the price of the coin will shoot up, and only those who buy it first will benefit. Those who come later tend to suffer loses.


Signs that an ICO Might be a Scam

There are several telltale signs that an ICO might be a scam. Some of the conspicuous signs that point to a fraud include;

• Poor Whitepaper or Whitepaper Entirely Absent

A whitepaper is a vital element for any ICO. It is in the whitepaper that you will learn most of what you need to know about an ICO. A good whitepaper is detailed but uses a simplified language you can understand.

Avoid ICOs without any whitepaper. Also, if a whitepaper leaves you with more questions than answers, it's better to steer clear of such an ICO.

However, note that an ICO can present a compelling whitepaper and still end up a scam. A good example is PlexCoin, which managed to raise over $15 million (USD) before the SEC discovered and shut it down.

• No Clear Roadmap

Legitimate ICO's should provide you with a detailed list of what they have achieved so far and what they plan to accomplish in the future. This list should be in the form of a road map. You need a clear view of where a project is coming from, is, and where it is heading.

If an ICO doesn't have a roadmap, then it likely has no plans of sticking around. The company wants your money and then disappears.

Note that, even if there is a road map, it should be realistic. Ignore hype. If an ICO you are assessing hasn't yet developed a working prototype, there could be trouble in the future. Never invest in an ICO with just a whitepaper to show.

• Team with no History or Experience

An ICO backed by a great team of developers and administrators can be a sign of a successful ICO. Scammers know this, which is why they can invent fake founders and biographies to entice you. It is a good idea to research the individual team members of a particular project before you invest.

You can find team members of a particular ICO listed in the whitepaper. The core team deserves intense investigation because an ICO is dependent upon their expertise and experience to survive the crypto market or be successful. Never invest in an ICO that has an anonymous team.

• Poor Community Reception

There're cryptocurrency communities and forums packed with crypto investors/experts whose knowledge and expertise can help sniff out scams.

Participating in such forums and communities can help you learn a lot about ICOs and save you from investing in a scam. If an ICO is raising a lot of concerns in a community or forum, it might be wise to tread carefully.

• Unnecessary Blockchain Integration

Blockchain indeed has the potential to revolutionise plenty of industries. However, it is not the solution to every problem in existence. Many ICOs that offer tokenisation as a solution to areas it is not needed.

It is wise to ensure the ICO you intend to invest in is backed by a project that needs blockchain to be successful. Most companies fail because they work so hard to fix blockchain technology, where it is not required.

You can also consider whether the aim of an ICO platform can be achieved with existing cryptocurrencies. If so, there is no need for new cryptocurrencies.

• Empty GitHub Repositories

Most blockchain projects are open-source to allow people to assess their code. Through a repository link like GitHub, any potential investor can check the underlying code of an ICO.

If an ICO doesn't provide a link to a repository or links you to an empty repository, then the project might be a scam. If you notice a few lines of code or copy/paste of another coin's code, then it might not be a good investment.

Note that you don't have to be an expert programmer to check out the GitHub of an ICO. There are plenty of social media platforms like Reddit that can give you pointers on how to assess technical ICO code in the simplest ways.

• Uncapped Fundraising Goal

The primary purpose of an ICO is to raise money to fund a project and launch its growth. Legitimate ICOs usually state the goal of raising funds in their whitepaper. If you read an ICOs' whitepaper and there is no goal as to why the funds are being raised, the project might be a scam.

There needs to be a reason why the money is being raised. If there isn't any in the whitepaper, then you might be in for a rough time with scammers.

• Guaranteed Profits

Guaranteed profit is the most apparent sign of fraudulent ICO (or any crypto-related venture, for that matter!). If you have been in the crypto market for a while, then you know how highly volatile the market is. There are no proven or guaranteed methods to ensure success in this market.

BitConnect is one of the most well-known instances of an ICO that promised guaranteed profits and turned out to be a Ponzi scheme.


Final Word

ICOs have their advantages when used well. For example, they offer startups a quick and cost-effective way to raise funds. Besides that, they offer investors great investment opportunities.

It is the infestation of scammers and thieves in the crypto market that has made many people start looking at ICOs with a different eye. But all hope is not lost for ICOs.

To avoid ICO scams, research is vital. Exercise caution by being on the lookout for the telltale signs we've discussed in this article. Also, trust your instincts.

If you feel an ICO is too good to be true, you're probably right.


Trader Bot Scams avoid ICO scams


About the author:

Jay Jackson is a blockchain enthusiast and a freelance writer at He works closely with brands (people, businesses and startups) in the crypto sphere. He currently writes Blog posts, Guides, Press releases, ICO reviews, eBooks & Whitepapers. You can find him on LinkedIn.


The above references an opinion and is for informational purposes only. Do not take this as personalised financial advice or investment advice. The views expressed by the author do not necessarily represent the opinion of BitPrime.

Last updated: 27/02/2020

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