ICO Fraud Alert: 6 Red Flags of Bullshit ICOs to Watch Out For
Vitalik Buterin insists that 90% of the ICOs will fail—and he is kind of right. Some of them are made by fraudsters, who will run with your money as soon as they raise enough to buy a Lambo. Others promote their unique world-changing product so hard, that one day they discover that all the money is gone on marketing and they have no funds to develop whatever they promised. And only some ICOs are conducted to crowdfund the project and launch a real product. Therefore you are more likely to invest in a scam ICO than in a trustworthy one. But there are signs that help detect fraudulent coin offerings:
Red Flag 1: Poor online presence
Scam ICOs are born out of nowhere, and they have to create an impression of a real project. But spending money on high-quality marketing is not their main aim. So they usually confine with a simple website and half-active accounts in social networks. Remember that creating such account is free and instant. So even if the project has “official Twitter” or “official Facebook page”, that doesn’t prove its reliability. Usually they don’t give any feedback to users’ questions, and even if they do, their answers are vague and fuzzy.
Look up every member of the team. Fraudulent projects have no Google history, so you can’t track them. If the CEO claims to have 15 years of experience in financial technologies, but all he has is a Linkedin profile with 15 connections—most likely, this ICO is a fraud.
Page with photos of the team members usually has a calming effect on potential investors. It seems that if founders are not afraid to show their faces, they have nothing to hide. But such photos themselves don’t mean anything, they can be some random pictures from the Internet. Some Chinese ICO, for example, has put a picture of Ryan Gosling as their graphic designer. The truth came out, because, you know, it’s Ryan Gosling, everybody knows him (except Chinese ICO-launchers). But there are hundreds of websites with pictures of people, who have no connection with the project. Search every member on Google Images to check where the images come from.
Fake celebrity involvement is also a popular way to draw attention of investors. If there are names of Andreas Antonopoulos or Winklevoss twins on the website, but those influencers never said a word about the ICO—it’s a direct sign of a scam.
Check if there is any platform where users can freely communicate or ask questions to the team. It can be a Slack channel or Telegram chat group, where users can interact with the project. No means of communication? The team is afraid of questions they cannot answer or accusations that can scare away investors. That is a reason to be suspicious.
Red Flag 2: Plagiarized Whitepaper
A whitepaper is a document that provides all essential information about technical details of the product, future plans and use of tokens. Writing an original whitepaper is quite a challenging venture, and only serious projects can afford it. It’s easier just to copy it from a similar project. Most adventurous fraudsters instead of stealing from one whitepaper steal from few different, creating patchwork whitepaper. Such documents are not checked or at least proofread, so they are just a compilation of different whitepapers, that tries to persuade potential investor to donate money.
The only thing worse than a plagiarized whitepaper is a poorly written one. If the project can’t hire a specialist who will write a decent document, this can end up in a sadly hilarious piece of art like whitepaper of Arbitrage Crypto Trader ICO. Attention to details and high-quality whitepaper shows the serious approach to the project.
Red Flag 3: Using blockchain for meaningless purposes
The blockchain is a magic investor-attracting word. It is, of course, a great technology, that has a lot of use cases, but it doesn’t fit everywhere. If the project aims to breed rabbits on some farm in the countryside, and it uses blockchain and issues tokens, claiming that it will help breed the fluffiest ones—it’s a reason to ponder if this project is trustworthy.
You don’t need blockchain and tokens to breed rabbits. You don’t need blockchain and tokens to make chocolate. You don’t need blockchain and tokens to grow tomatoes. If you see that the purpose of using blockchain in the project is meaningless, then probably it’s used only to draw attention, and that is not a good sign.
Red Flag 4: There are no developers on the team
It’s not enough to have an idea of a great product—troubles come when you try to make it a reality. Every serious project has a team of developers, that doesn’t only create a product but constantly improve it. If the project claims to be open-sourced and there is even a GitHub page, but the first and last update was a few months ago—doesn’t seem credible, does it?
If ICO’s board looks like this: CEO, Project manager, Marketing manager, PR Manager, Event Manager, Coffee-making Manager, Manager of Managers—this start-up won’t last long. Managers are great, but developers are essential to create and improve the product.
Red Flag 5: Blatant bribery of influencers aka shilling
You have never heard about this project before, and then suddenly it is everywhere. In YouTube videos this ICO is called “the most promising of this year”, influencers advertise the token in Twitter accounts, the advertisement is shown up every time you search anything crypto-related. It means that a lot of money is spent to convince as many people as possible to buy invest money in project token. Of course, an advertisement is essential, but if the service and product are really useful, it will draw attention of the community even without aggressive buying of paid reviews. Marketing the product is not a crime, but trying to manipulate people through the influencers is a bad sign.
Remember that advertisement means nothing—opinions can be bought. John McAfee, crypto influencer, who has 800,000 followers on Twitter (and thanks to whom everybody are waiting eagerly for 2020), revealed recently, that it costs $105,000 to get his promotional tweet. Does he guarantee that the token sale he promotes is not a scam? No. Is it difficult for fraudsters to pay $105,000 and get thousands of devoted investors? Again no. In cryptoworld you can’t trust anybody.
Red Flag 6: Guaranteed profit
“There is no risk. It’s guaranteed that you will get 20% from invested sum every week”. If you hear these words—run as far as you can, rest, and then run a bit more. We must stop believing in fairy tales and just admit, that guaranteed profit doesn’t exist in the world. There is always a risk. Bitcoin itself is a risk, not to mention ICOs. If ICO team insists that there is no risk in investing in their project—they are fraudsters, or incompetent in what they are doing. Anyway, this is not going anywhere good.
Are there any good ICOs at all?
The most interesting begins after ICO. Here starts the drama or an exciting journey. Some projects, like Benebit, make an exit scam with investors’ funds. Some, like Giza Device, launch fake ICO and go dark after raising $2 mln.
Good news: there is a small number of ICOs that are conducted to raise money not to buy Lambos for team members but to develop a product. Bonpay, for example, had a live product even before launching ICO—thousands of clients have been using Bonpay wallet. At the beginning of this summer Bonpay starts to issue cards that instantly convert cryptocurrency to fiat money, making usage of crypto possible everywhere. The project has active profiles in social networks and open chat in Telegram where users are free to discuss the updates, ask questions and communicate with the team. Money raised in ICO is used to develop new and improve existing services. The project sticks to the roadmap even after ICO and is working hard to make spending of cryptocurrency as easy as of fiat money.
We can list endless signs of scam ICOs, but common sense is still the most important in choosing the project to invest in. If the product seems utopian or useless—it’s a scam. If investors are promised to have enormous profits—it’s a scam. If there is a big picture of Vitalik Buterin on the front page of ICO website and his quote about how great is the project, but Vitalik himself has never mentioned participating in such venture—it’s a scam. Common sense and red flags mentioned in this guide will help you detect fraudulent ICO and save money. Do a little research before investing and always be sceptical.
Disclaimer: Not financial advice, provided for educational purposes only.