Initial Coin Offerings or ICOs is currently a very popular business funding solution in cryptocurrency. Thanks to the rise in the price of Bitcoin in 2017 and the ICO trends it has resulted in some nasty ICO scams.
Due to the lack of legitimate guidelines and government regulations in ICOs, there have been several reports of scammers taking advantage of investors.
They’ve managed to trick people into investing money with no prospect of getting anything back or into projects doomed to fail.
This can make it quite difficult for investors to differentiate between legitimate projects and schemes that are just looking to grab money. These projects are also called shit coins (excuse the word).
Past Examples Of ICO Scams
Even as you go through recent cryptocurrency news, there is a high chance you will find an article relating to scammers or people getting scammed. One of the most recent scam news involves a website known as Gramtoken.io, which took advantage of the latest upcoming ICO offering by the chat application Telegram.
Some versions of the upcoming ICOs whitepaper including precise information surrounding the ICO were leaked online. This presented scammers a good opportunity to set up scam websites and hype them up with legitimate information.
Gramtoken.io was among the most prominent fake sites. The site used details from the leaked whitepapers.
It even went on to post a copy of the leaked whitepaper so as to make it look legitimate.
The site’s tracker claimed to have raised more than $5 million before the site itself went dark on January 17, 2018. Some people who invested into the scam took their frustrations to social media after the site was exposed as a scam.
Another recent ICO scam which was just exposed a month ago involved scammers who created a fake ICO to fund a project called Giza. The main focus of the project was to develop a device that would store cryptocurrencies.
The ICO started in January and managed to raise 2100 Ethereum coins by February ($2.4 million value). When the Russian firm third pin who had been assigned to manufacture the device halted the manufacture of Giza because they claimed that no payment had been received, alarm bells began to ring.
Several investors who first thought that the project was legitimate said that various warning signs, including a lack of correspondence with the founders and falling out with the supplier, began to appear.
Other investors also went on to reveal that no one had ever had contact with Marko Fike, who was the chief operating officer at Giza. Apparently, a fake LinkedIn profile that was created in his name claimed that he was a community manager at Microsoft, which was denied by the company.
Giza’s website was then taken down on March 9, 2018. It had been described as a startup which consisted of young and ambitious hardware developers, programmers, marketers, and industrial engineers.
How People Can Avoid ICO Scams
There is no solid filter that can be applied to picking out decent ICOs. The uncertainty behind the success of a project itself can make people feel reluctant to invest. However, this does not mean that all ICOs are bad investments.
By acquiring experience in investing through good practice and patience, people can learn to avoid ICO scams. Below are some of the important practices that should be followed when judging an ICO.
1. The Scope Of Product
During the Initial Coin Offering phase, ICO projects are unable to give full assurance of a working product.
A cryptocurrency project can be judged based on the reputation and recent success of the members of the team involved in the project or the company.
However, it is important to consider this because the company may have a very different set up from what it worked under previously.
The quality of the product should also not have a direct relationship with the number of investments that have been received through an ICO.
2. The Scope Of Coins
The sale of application coins was the result of a long-term process that helped to coin a project. This led to coin variations getting introduced to the market that could be exchanged for cryptocurrencies such as bitcoins.
In other words, does the project really need the coins issues? This will have a direct effect on the value of each coin.
3. The Outcome Of Scope Analysis
Analyzing the outcome of a project based on the above two concepts should definitely help give you a good idea as to which ICO projects are worth investing in.
Any projects that fall into the low category of either scope should be completely avoided. The risk of investing in projects that have undelivered products or app coins that are questionable rises in proportion to the amount invested in the project.
Eventually, an ICO will continue to become more unstable as it grows larger due to the several complexities that will come up.
Investing in projects that have medium or high categorization in both coins based and product scopes will bring a more pleasing return on investment and lower risk.
Now that you know how to spot a scam, find out how to research and invest in ICOs here.
More tips for avoiding ICO scams can be found below: