How to Spot a Fake ICO?
You know my methods, Watson.
Did you just encounter an ICO advertisement promising enormous return? Or does the tagline read
“PRESALE SOLD OUT IN A SECOND?” With exponential growth in public interest, esoteric
terminology and lax regulatory framework, it is no surprise that some ICOs have been used to fund
scams and cheat investors of their money.
It is becoming harder and harder to spot a fake ICO simply because scammers are getting better at it,
it’s never too late show them you’re the best.
We’ve got ourselves to put together few tips to build a Vocab for Beginners thinking of investing in an
ICO. You might want to take a quick look at the tips to make sure you crack the right nut.
WATCH OUT FOR PURPOSE OF THE ICO
The Blockchain movement is all the rage these days converting numerous companies, including tea
corporations and photography giants, into its followers, but there always should be a purpose the ICO
strives to serve. Whether it is realistic and full of potential? Note that not every venture is required to
leverage the Blockchain technology for its functioning. In this case, moot question to be asked is
whether Blockchain and support of ICO tokens are really necessary to reach the stated goal. If no, you
just need to walk away.
THE MIGHTY WHITEPAPERYou need to go through the contents of the white paper. Whitepapers usually explain how the platform
works. If your project claims that it is building some sort of decentralized service or token with new
features and actually provides no explanation of how it works specifically, then it’s a SCAM.
Scammers tend to come up with attractive jargons to make the sentence look great in order to fascinate
their audience. Do not be surprised!
The business white paper ought to contain strategic plans, milestones or the roadmap. The Technical
whitepaper has to properly explain the underlying stack of technologies and provide in-depth insight to
their working.
Look for a clear roadmap — see if you understand the plan and the timing mentioned are feasible. If the
roadmap is not clear, then it might indicate that the project is motivated by the short-term financial gain
rather than a viable longstanding plan.
Look for the specific set of information — when you go through the whitepaper, ensure that it covers all
the details outlining the mission, as well as technical and critical features behind the venture. Then
check how advanced and capable the technology is and whether the proof of concept (Documented
evidence) has been done or not. The proof of concept could help you gauge the potential of the product
and how successful it can turn out to be. You can feel the veracity of the project with the detailed
description of the underlying technology. It should also comprise the entire detail of the token flow.
STALK THE TEAM (Easy isn’t it...?)
You should try and acquire as much knowledge about the people behind the project. Noble crypto
Columbuses have nothing to hide — their profiles should be visible and authentic (it would not hurt to
do some background check: websites, previous projects and social networks). It could provide you
information related to their experience, stories and the details about the communities they have been
associated with. If you doubt the credibility of the team members, do not let them cash in on your
naivety.
LOOK FOR CODE REPOSITORY
Public blockchain-based ICOs usually are open-source. That means the code of the project should be
available in the GitHub type repositories for the purpose of its examination. Expert analysis of those
codes (performed by programmers) can affirm the validity of the ICO.
If the project does not have its code there or if it is simply a copy of already existing codes ... no one is
compelling you into investing in it.
ENSURE THE CREDIBILITY OF ESCROW MEMBERS
An escrow is a service or a wallet where the coins of the investors are kept till the certain deal is
completed — after that the fund can be released. In the case of not meeting the planned deal, the money
is returned to the corresponding investors. The handling of the funds in the ICO related projects is done
through the same kind of escrow system, which is handled generally by known and credible members.The famous incidence of deClouds ICO is an example of compromised escrow members — a single
person disguised and carried more than one key to transfer the funds that eventually lead to loss of $9
million.
IDENTIFY THE FUNDING
While analyzing the project, you can identify whether the fund required for its successful
implementation is appropriate and realistic or not. The mentioned amount should be neither too high
nor too low.
ENSURE THAT THE TOKEN MINING STRUCTURE IS UNBIASED
Watch out if the percentage of tokens is benefitting the developers majorly. This step will help you in
revealing the intention of the whole project — maybe it is simply the maximization of personal gain of
the founders. Although the early investors and the developers deserve to be benefitted, it should be
done in a balanced way and without compromising the viability of the blockchain network. It is
definitely a matter of concern if the total reserved percentage of premined tokens is high throughout the
lifeline of the project.
The founder of Paycoin had deployed this strategy i.e. keeping a high percentage of total tokens in
premined form for its developers in order to maximize the personal financial gain from appreciating the
value of the token. Eventually, he got accused of carrying out the scam of around $9 million.
CHECK ONLINE FORUMS
Checking reviews of other investors on online forums as well as looking for proof of endorsements and
involvement from reputable figure can help you significantly in knowing about the ICO. Additionally,
it provides an opportunity to clear your doubt by allowing you to ask for the opinions and suggestions.
BitcoinTalk and Reddit are some of the popular forums available. And yes, be aware of the people who
manipulate using fake accounts on such platforms.
SO ... ICOS ARE DEFINITELY NOT THE DEVIL
As we know, at this time ICOs are quite unregulated; this could be considered both as a pro and a con
because it is a faster way for companies to bypass the rigorous and regulated capital-raising process
required by capitalists and banks. But still, there is no way to control these kinds of sales. In fact, the
lack of legal guidelines has resulted in more than a few scams, and investors can find it challenging to
understand if there is a potential opportunity or if it is a Ponzi scheme.
Of course, this doesn’t mean that all ICOs are bad. There may appear absolutely brilliant ideas behind
some of them.
Always remember, a scammer will always leave a clue behind. You just need to find that clue.