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How to spot and avoid a cryptocurrency and ICO scam?

Since the last major cryptocurrency bull run in 2017, the global ICO scene exploded. And with it came a plethora of fake crypto and blockchain projects, all with the goal of getting rich while ripping off unsuspecting customers. These sketchy new projects promoted their new coins in every possible way, promising amazing returns, better technology, or widespread adoption that is sure to eclipse even Bitcoin. And it brought them plenty of customers, all trying to catch the next Bitcoin or Ethereum killer to get rich quick.

But of course, many of these tragedies where people lost all their money could have been avoided if they would have done their own due diligence and kept a lookout for some basic red flags. That’s why we present you with our basic list of seven possible signs of fraud in a new project.

1. The projects Homepage:
Now, this might sound surprising to some, but there are projects out there trying to sell you a brand new crypto asset with great returns and other amazing technological advantages to already existing projects and their website looks simply not professional or the spelling is way off. This, of course, makes it hard to believe that the project that wants to possibly raise millions of $ in BTC, ETH, or other assets is not able to present themselves in a professional way.

2. The Code:
Of course, now many of you will say: “But I have no clue about code and don’t know what to make of the information that can be found at Github.” But this is not the mindset of an informed investor. And of course, we don’t expect you to be able to code, but you should at least be able to find out when the last improvements were made to the code of your chosen project. And you should be able to verify if a certain programmer already contributed to other projects or if he just posted his first lines of code to GitHub. So get familiar with this new tool and thus get ready for new insights.

3. The Team:
As one might think, showing yourself and giving personal data about your background and accomplishments should be something you should be proud of, especially when you are about to create something new and groundbreaking. That’s why we expect a legitimate project to fully disclose the team that has come up with this new innovation. Of course, there might be the occasional exception. Sometimes a crypto-OG might only be represented by his avatar or pseudonym or there could be an advisor who doesn’t want to be known by his real name. But overall you should be able to verify most of the team members’ credentials through their provided LinkedIn account to confirm their claimed successes. If you have trouble finding valuable information this might be a very big warning sign to keep away from this project and better look for something with trusted team members with a proven track record.

4. The Whitepaper:
And again there will be some out there complaining about all the work you have to put in to become successful in this field. But there is simply no way around reading the whitepaper provided by the project team.

Now there can be several situations regarding the white paper.

  • There is no whitepaper. this of course is the worst that can be. If you want people to invest in your new product you should at least provide them with a comprehensive whitepaper that outlines the technical aspects, the utility of the token or coin, and a general roadmap to see what lies ahead in the future.
  • There is a whitepaper provided but it is not very informative. It lacks general technical information, has no roadmap for planned future targets like a product launch, exchange listing or basic updates. But instead is filled with meaningless phrases and text snippets that could as well be copied from other projects.
  •  There is a whitepaper but it is written in such complicated ways that you would need to be a professional coder to know what they are talking about. Now, this shouldn’t be a flat-out reason to discount a project as risky, but a well-written white paper will always allow the interested layman to get a glimpse of the projects main idea and be able to understand the main selling points. So if it sounds way too complicated, better be prepared for complications ahead.

5. Partnerships with other Companies:
Finally, something that should be easy to check.
Many new projects already boast of their already achieved partnerships with highly acclaimed industry leaders. There you can sometimes read that companies like Microsoft, Softbank, or other already existing crypto companies are involved in the development but when you follow up on these claims they fall apart most of the time. That’s why you should always check up on announcements from the mentioned companies. Sometimes you will be positively surprised and other times you will find the denial of any proposed partnership.

6. The promise of gigantic gains:
As the old saying goes: “If it sounds too good to be true, it probably is.” And if you look back at some of the outrageous promises of return on investment, it should be pretty obvious that there is something wrong. The already mentioned BitConnect can be seen as a general example of exaggerated profit claims. They promised their investors daily returns of around 1%, making it one of the world’s most insane growing investment opportunities. And of course, it had to go belly up, generating huge losses for its investors around the globe in the first quarter of 2018 after losing more than $2.6 billion in market capitalization.

7 The token sale/tokenomics:
Always have a look at the current token sale statistics and don’t forget to glance over the tokenomics of the project. So, what do we mean by this? Well, the statistics of an ongoing token sale should always be observable by any investor. Otherwise, you would not know about the current state. And of course, you want to know about the interest in the project, how many tokens have been already sold, and if there might be some whales who might dump a lot of their holdings to realize giant gains after a project is listed on a viable exchange.
And of course, you have to have a look at the tokenomics. These will show you how much of the tokens are allocated to the founders, what percentage is dedicated to funding further research, marketing, and other important aspects of a project.

All in all, you can see there is a lot to look out for if you are looking for new and interesting projects. And it might seem a little overwhelming if you are new to the world of crypto. But if you are really interested all this will soon become easy to apply and your knowledge will grow together with your sense to spot a fraud. In this spirit, we hope to inspire you to get involved and start exploring the plethora of great projects out there.

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