Altcoins Initial Coin Offering

Here is how you can identify Fake ICOs

Do you take pride in knowing the buzzwords of business like AI, ML, and Blockchain?

Congratulations, you have the edge over the recent happenings, but that’s not enough. Welcome to the world of ICOs. Now, if you are into startup news, you must have heard of the ICO wave that has taken the VC circuit by storm.

These initial coin offerings (ICOs) have earned billions of dollars of funding to startup owners all over the world. It seems like ICOs are a very easy way of getting money for your next big business idea. We know fundraising has been a trouble for many people, and not securing enough funding comes as a big blow. If you do not live around the Bay area, your chances are thinner.

ICOs emerged as the groundbreaking way to offer something lucrative to secure funding for your project. It gave us Bitcoin, Ethereum, Autoblock, and Ripple. It went a step beyond venture capitalists, angel investors, and Kickstarter campaigns and connected you directly to the source of the capital. Scammer food:

It didn’t take long for the miscreants to catch up. The cryptocurrency business has invited many scammers to the party, putting trouble on major platforms in various shapes and sizes. It is a new market, and the chances of creating chaos are high.

It is easy to fool someone into investing in your ICO than it was ever before. With the holiday season coming up, there will be more chances of scams and people investing in fake ICOs. Plenty of people have fallen for this trap with their savings.

The most important reason behind fake ICO propagation is the confusion around the concept of ICOs. Since Blockchain operates without a bank, the transactions happen on an encrypted platform with the ledger being saved on multiple computers. It saves you the trouble of hacking but opens new doors of fooling and scamming.

An ICO advisory firm that studied ICO transactions broke it down into the following six categories:

  • Scams
  • Failed
  • Gone dead
  • Dwindling
  • Promising
  • Successful

By this classification, they found out that approximately 81 percent of CIOs were scammed! Compared to this, 6 percent had failed, 5 percent were gone dead, and 8 percent went to a trade exchange.

The firm assured that they would polish their research in this domain and produce a deeper study in the coming months. Whereas another research found out that 46 percent of last year’s ICOs have already failed.

Fake ICO examples:

Recently, an ICO scam shook many investors to the core. The ICO was called Prodeum, and it appeared on the markets on Thursday. By Monday it was gone.

Prodeum explained that it wanted to build a database of vegetables and fruits. It was going to use the Ethereum platform for their ICO. It promised to fulfill this project by raising 5,400 ether, which amounts up to $6.5 million. They were doing everything right, from the professional website to the amazing description, it looked promising. However, after the weekend, the website was only displaying an eggplant emoji and nothing else. It was like the ICO never existed.

Last year, a Mumbai-based startup called One Coin managed to funnel $350 million by offering nothing but the fame and might of owning cryptocurrency. The culprits were caught when a German regulation company started an investigation into the working of One Coin, and the assets were seized after recognizing a scam.

Another Ethereum-based ICO called you confide raised over $370,000 and mysteriously disappeared. The names are different, but many scammers follow the same plot. Confido portrayed itself as a startup that could be used for making payments and tracking shipments. Just like Petroleum, the company ran for two days after which their Twitter was deleted, and the website was taken down.  Many investors said that they were scammed big time, and the company representatives have disappeared completely.

Following the trend of Ponzi schemes to fool innocent investors. But connect came into existence and was shut down shortly after lots of bad press. It was an anonymously-run website that was asking people to invest in ICO in return for high returns with an outrageous bonus.

These entities rise and fall in the cryptocurrency market regularly, fooling people and then disappearing into the blue after much damage.

It does not mean that every ICO is a scam, but you, as an investor must be cautious when initiating a transaction. The cryptocurrency market has amazing potential, but it is also a shady place, full of scammers and miscreants.

Detecting the scam:

The best way to identify a valid ICO is by reading the white paper that comes along with it. An ICO white paper is the most genuine document that can help investors find out if the new startup presents a solid opportunity for future success.

Many CIOs raise millions of dollars in initial investment without even having a prototype. Even if the prototype demonstration is available, only investors with a keen eye can choose the ICO that can stand out. That’s why white papers are the key to the success of an ICO. Plenty of startups write the white paper themselves, while others hire a reputed service to do this job.

However, in the case of Petroleum, the white paper looked professional and described a model using two different types of tokens. It looked very genuine compared to the most valid ICOs and even quoted that they are going to use help from four prominent experts in the field. One of the experts, Peter Jandric said that he became a victim of identity theft and he was not involved in Petroleum. Other experts also reported the same issue.

Here are some tips:

  • Shiny website: the fraudsters will run a spotless website to fool victims. They will make the site and customer service look too good to be true
  • High returns: the fraudulent ICO will promise high returns on initial investment which is incomparable to other ICOs in the market. This is where you should raise your brows and put your detective cap on
  • No evidence: in the cases mentioned above, Blockchain based startups appear out of the blue, offer returns and ask for money without presenting even a single bit of evidence of their credibility. This is where you ask serious questions. Go hard or go home
  • Shaky whitepaper: if you find a white paper, link it with a legal expert, and you will spot many flaws and loopholes
  • Lackluster content: put two scam cases together. Those can be your case studies in this domain. Fake ICOs are full of buzzwords and high claim words that are nowhere near reality. Good words are the only good thing they offer. Be warned
  • Illegitimate accounts: in the case of Petroleum, the experts reported identity theft and fraud. When you come across a good ICO, research the people and find out if they are legitimately backing their claims. Fake artists will have fake social media, fake IDs and no real face to own the company. Consult with experts over communities like Cryptochats where you can learn more about investing in a legitimate ICO
  • No samples: the fake ICO will not have links to samples/prototypes or repositories at GitHub. This should warn you that there is no Blockchain development, to begin with. The suspicious company will ask you to send the money to a personal crypto wallet rather than an escrow, which should be the last alarm

Be warned:

While ICOs have changed the way we do business, they have also raised serious questions on regulations. They are not supervised by regulatory bodies, and that is a new world of challenges. Be very careful of Ponzi schemes, because it is quite impossible to repay a person in thrice the value of their investment. Make sure you go through the whitepaper and weigh its legitimacy. Lastly, approach the team personally to make a final verdict on the case.

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