Fake ICOs are the plague of the crypto age. Finding a reliable token sale project for investing gets trickier with their increasing number. Avoiding fake ICO projects is especially difficult if you are new to crypto.
Due to the lack of a regulatory framework to evaluate the phenomenon in the majority of countries, it’ shard to verify whether the information that the ICO websites present is correct or not.
Do Your Research
Forums like Bitcointalk, Reddit and GitHub remain at the top of the checklist in most searches. They may greatly help you to distinguish legitimate projects from the non-legitimate. Yet they can also confuse beginners with confrontational discussions between parties supporting one project and trashing another. Even genuine ICOs may acquire a ‘scam’ label after such debates. We recommend you to rely on your power of discernment and common sense at all times to keep away from counterfeits.
Beware Of Scams
Services like ICO Rating, ICOcountdown, and the like might be of help when it comes to identifying scams. Opinions they present shouldn’t be the only criteria during your search for a solid ICO.
Just like many altcoins that have no value representation to back them up, many ICOs promote tokens with either too narrow or too general sphere of application. Keep in mind that there should be a real market that the token fills to make its value bloom.
What Are You Being Sold?
Projects that have already created a product or service before running an ICO deserve more trust. Startups and companies that are in operation already are likely to bring returns of investment. There’s no framework in the crypto-world so far to ensure that the ROI will take place at all. Equally, there’s no guarantee that the project’s inventor(s) / creator(s) will keep their word. Many never accomplish what they aim to achieve as stated in their documentation and roadmaps.
The statistics about the financial successes of the ICOs are impressive. However, they don’t always give you the full picture of what the market is undergoing. According to CoinDesk State of Blockchain report, as of Q1 2017 (the peak of token sales), the total VC deal volume exceeded $100m. Meanwhile, about $30m was raised during ICOs, but only a dozen or several dozens of such projects were successful in contrast with hundreds of those that didn’t reach the cap or failed to create/deliver the product they aimed for. Some of them were scams that disappeared abruptly. Every other release of the ICO news to the public is followed by a scam warning (DeClouds, Polybius, Bloq, Bits Digit, Ebitz, Nodio, Droplex, Tithercoin, Ascendancy, Penny Snap, Coloredchain, etc., etc., etc.).
What Do Fake ICOs Have In Common?
Very often you may come across infeasible ideas that do not provide any solution for an existing issue. So to evaluate the project, see if you can find the answers to the following questions: what are the goals of the project? What is the sphere of application of the coin/token? Which problems does it solve? Very often you will come across ICOs raising money for another useless coin with no real application model.
Lack Of Transparency
The way the project is presented should not be too vague or too simplified. Therefore, its description should contain enough details to explain the core operational processes and functionality. Check if there is enough clarity/transparency in the project description, especially when it comes to the allocation of funds. Often this aspect is neglected.
You may come across a fake, inexperienced or anonymous team. The team determines a considerable part of the project’s success and shouldn’t be overlooked. The team’s skill-base has to be very specific and fit the project’s goals and needs. Likewise, the information about the IT developers is often insufficient or missing or otherwise is not transparent enough to give you a complete picture of their abilities and experience. Look at each team member’s portfolios attentively and objectively.
Documentation & Business Model
Very often fake ICOs reveal themselves by the lack of detailed technical descriptions and a clear strategy outlining its real budget needs. If a roadmap with the time frames is missing, beware. Even the most innovative ideas need a solid back up such as a model tested in real business practices. Every success requires extensive planning.
An escrow is extremely important for the safety of funds collected through ICO. It is one of few safety measures ensuring the contributors’ funds from stealth. Some escrows also refund the contributions back to the senders in case the project hasn’t met the minimum cap. Scammers don’t bother about that normally.
No Product Or Service
Lots of ICOs present their project only through a whitepaper and a website. Formally, there’s no guarantee that they will ever build anything after the ICO. Actual service or product in operation, development or in the testing stage will greatly increase the company’s rating.
No Legal Entity
A company with registered legal incorporation has more credibility in the eyes of investors than a team of people without any legal binding. You have to be careful here as scammers can fake this information. Sometimes the only way to prove or disprove that is by contacting the legal authorities who execute incorporation.
Make sure to check the terms and conditions of the token sale you are considering for investment. For instance, it should clearly state when and how you will receive your tokens. Some projects have a refund policy in case they don’t meet the minimum cap requirements.
When you examine successful ICOs, you notice that none of them are perfect. Some of them may have missed one or several points that we outlined above. With no regulations to back the growing ICO industry, the core criteria that you need to apply in your search is common sense and intuition. We hope that the checklist above will be useful in your decision-making.
For more tips, we recommend checking out the Guide to Digital Token Offerings from MAS.