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How to recognize an ICO scam

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Currently, many people believe that they can get rich quickly by investing in a new cryptocurrency early on. This hype not only attracts hobby speculators, but also many scammers who announce their own cryptocurrency, but then just run off with the money they collect. Nairatalktoday explains what the top five signs of an ICO scam are.
Most new cryptocurrencies are financed in a similar way to a Kickstarter campaign. The founders collect money via crowdfunding to pay their programmers and themselves. Those who take part will then receive the first digital coins of the new currency for their actual currency. Such a financing round for cryptocurrencies is called Initial Coin Offering (ICO) and is based on the Initial Public Offerings known from the stock world – i.e. a first issue of shares.

The big difference between these two investments? An IPO is strictly regulated, an ICO is not. And this is exactly where the problem lies: Because it is sometimes easier to start an ICO than to register a Kickstarter campaign, there are many scammers who simply disappear with the money. 

Because of the hype surrounding cryptocurrencies, many projects have quickly raised a disproportionate amount of money. In the first quarter of this year alone, more than 5.2 billion euros were invested in ICOs worldwide. That is more than was invested in this way in all of 2017.

For all its problems, crowdfunding makes sense for a decentralized project. Not only large investors should be able to participate, but also the later users of the currency. They should be involved early in the genesis of crypto money and thus guarantee the success of the currency. The hope of many financiers: the value of the currency or token would multiply once it was traded on an online marketplace (exchange). A speculative business where you can also lose a lot of money.

It happens again and again that ICOs have been marketed very well, but there is actually little behind them. The price of the currency then usually collapses immediately and never recovers. It is also not uncommon for an ICO to be designed as a rip-off from the start.

But how do you spot an ICO scam? We have identified the five most important signs for you:


1. The team is unknown


Even before you read into the technical details of a project, you should take a closer look at the team and the consultants of the ICO. If there is no personality among them who already has a certain level of awareness in the industry, the project should be researched more closely. Because building a blockchain-based project is very complicated and hardly possible without sufficient experience.

But even if a team is experienced, you should be careful. For example, crypto startup Miroskii tried to introduce Hollywood actor Ryan Gosling as its graphic designer . Anyone who knows Gosling will quickly have recognized the ICO as a scam. But scammers are not always so clumsy when it comes to choosing the pictures of their “team”.

This is where Google’s reverse image search comes in handy. Here, the Internet is searched for similar photos and it is thus possible to quickly determine whether the image actually comes from another website. If Google then shows you that the skills of the person you are looking for are acting rather than graphic design, then you should keep your hands off the ICO.

Of course, the same applies to the names of the team members and supporting companies. In what other context do they appear on the web? If the answer is “not at all”, that is also a first indication of a dubious ICO.


2. The white paper has gaps


Many projects present their own cryptocurrency with a so-called white paper. It usually describes what the founders want to achieve and what technology they want to use to do it. Such a document is usually around 20 to 40 pages long. If it falls short of this length, this is often the first sign of a poorly developed idea.

Of course, length isn’t the only thing that matters. Many scammers’ white papers are, to a large extent, just copies of other projects’ documents. Here, too, it is worth entering several passages of text from the white paper into Google. Plagiarism is so easy to spot.

However, a white paper should not only present the project. In addition, it should describe what challenges the founders have to overcome, what the wallet design looks like and how this cryptocurrency differs from its competitors.

3. The roadmap is unrealistic


With a professional ICO, the founders present in detail what they have already achieved, what stage of development they are currently in and what they want to achieve. All of this is entered on a roadmap. A kind of timetable that should show how the project should be developed further.

If the roadmap is overly ambitious or unrealistic, the seriousness of the project must be seriously questioned. A scam can often be recognized simply by the fact that investors are promised huge profits within a short period of time.

4. There is a lack of transparency


Anyone looking to financially support an ICO should see if the project already has an enthusiastic and active community. A look at the Twitter presence or the associated Reddit board of the project is usually sufficient. If the team responds openly and transparently to questions from investors and interested parties, this speaks against a scam. Authentic ICOs also make their program code public on the developer portal GitHub.

However, transparency alone is not everything. The content of the answers can also provide information about the true motives of the founders: Projects often unmask themselves. If, for example, they plan to distribute a large part of the coins to themselves, it should be clear to investors where the priorities of the team lie: In their own financial enrichment. Not because of the long-term success of the currency.

5. The niche is way too small


Even if the first four points do not indicate a scam, a cryptocurrency can quickly be abandoned by its creators or fail. That’s why you always have to ask yourself: is there even a market for this currency or this blockchain technology?

An example here is Eroiy: a token intended to serve as an anonymous means of payment for the porn industry. Even if the idea may not be wrong – and the motivation of the founders may have been honest – there was no real niche for Eroiy. Any other privacy coin (such as Monero or Verge) can also be used to pay anonymously. On closer inspection, Eroiy is redundant because there were already enough alternatives.

One can never be sure

Unfortunately, even long and detailed research is no guarantee that a cryptocurrency will be successful. However, you can minimize the risk of investing in an ICO scam.

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