Source - https://medium.com/coinscapture/how-to-identify-ico-scams-169a607d108b
Various ICO’s in the cryptoworld act as an innovative financial model which helps the new blockchain based start-ups to raise funds. The capital generated during the ICO benefits the start-ups and also cut down the long procedures required for getting loans in the regular financial system. Along with them, even investors get benefits by earning huge amounts of returns. But this innovative way can also turn as a nightmare for some investors if it is a scam and all the money invested gets stolen.
ICO’s are unregulated due to which scams are becoming the most common these days. These scams occur in two ways; the first way includes a fake ICO created by hackers that steals all the money invested and the other way includes hackers spoofing a legitimate ICO, making/tricking investors to pay them instead of the real company. ICO’s are sometimes very risky because they are vulnerable to both massive volatility and fraud. A recent study revealed about 80% of the ICOs conducted in 2017 were fraudulent which indicated many people to avoid them; which indirectly hampered the chances of a new coin to succeed.
ICO scams till date
Now, we know about how ICO scams occur, Let’s take a look at some of the biggest ICO scams in recent times:
- OneCoin: This was clearly regarded as a Ponzi scheme and the worst scam faced by the cryptoworld stealing about $30 million in the countries like Thailand and China.
- Centratech: Earlier this was not suspected as a scam because celebrities like DJ Khaled and Floyd Mayweather were endorsing it and the company also proposed a service that would allow users to spend cryptocurrencies as fiat money which attracted many people in the USA and raised about $32 million dollars.
- Pincoin: An ICO scam that raised $660 million dollars from 32,000 investors in Vietnam. The company fooled investors saying that a token called iFan would be developed which will be used as compensation for the investors. But once the token was issued, the team disappeared.
- Bitconnect: A Ponzi scheme that raised around $700,000 from investors in the USA as the users of Bitconnect were encouraged to trade Bitcoins and were also given assurance of substantial returns from their investment.
- Plexcoin: Plexcoin is a return on investment Ponzi scheme that was held in the USA and offered more than 1300 percent return due to which about $15 million was raised from thousands of investors before the US Securities and Exchange Commission (SEC) intervened.
Points to evaluate the legitimacy of ICOs:
There are several points in an ICO necessary to be considered before investing in it and avoid getting scammed:
- Research about the company, team leaders and developers: A suspicious ICO will always lack detailed information about the company location, project’s team leaders and developers in order to avoid getting caught and accountable. So, it is highly recommended to check each and every information related to them before any kind of investment.
- Whitepaper and Website inclusions: Website and whitepaper play a major role in gaining the trust of investors. It is necessary that points like the value of the project and the reasons why people should invest should be explained in detail and presented in an appealing way to the investor’s eye. So, the maximum of the people involved in the scam will often skip this step and try to allure investors.
- Future plan of the ICO: ICO is the initial step that attracts the investor, if it lacks the future plan then it is a major indicator of the scam and the people associated with it have no long term plans because they are planning to run away with all the money that will be invested.
- Promised good returns: It is always said that too good to be true then it probably isn’t true, so always check that what the project is offering, if it is offering more than your investment; probably it may be a scam.
- Referral programs: If an ICO has a structure of referring and earning; then this could be a scam (Ponzi scheme or pyramid scheme) because people are encouraged to bring new investors for which they are rewarded and money flows continuously. Due to which many times a large number of new investors participate and everyone involved in the project stops getting paid.
- Sudden sign of urgency: In an ICO scam, a sudden phase of urgency is created and investors are pressured to quickly make a decision.
- Sensitive information: Many times people are scammed after collecting sensitive information like passwords, private keys or other security pins.
With increasing corruption, there are numerous scams occurring in the cryptoworld that has swallowed a large amount of money through ICO frauds. So it is the duty of every investor to exercise the utmost care while dealing with money and check minute details of the project before investing in it.
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