If you’re new to the crypto universe, then you might not know what Initial Coin Offerings, or ICOs for short, are all about.
ICOs have become the bloodline for most start-up blockchain-based services, allowing them to secure the necessary initial capital in a very ingenious manner. With the help of ICOs, entrepreneurs to developers can allow the public to invest in their projects in a very hands-on manner.
The basic concept of ICOs is simple: they are used to offer potential investors units of the new cryptocurrency or crypto-tokens in exchange for already-established cryptocurrencies such as Bitcoin, Ethereum, Litecoin, etc. The acquired funds can and should be then used to fuel the future development of the new cryptocurrency.
Since ICOs are non or barely regulated, it’s not difficult to imagine that they’re inherently vulnerable to fraud. That is why, below, we have compiled a list with all the necessary steps and precautions you should take before taking part in any ICO.
Trust your instincts
The first and most valuable advice to follow when it comes to steering clear of ICO scams is to always trust your instincts and use your common sense. If something seems too good to be true, then it’s probably a scam. Take your time, do your homework, ask questions; a lot of questions. And then, ask some more questions, until you are sure that you have all the necessary information.
Right off the bat, you should also know that no legitimate company or third-party will require money from you in order to take part in an ICO. Finally, when and if in doubt, don’t hesitate to reach out to the community. A post with the ICO you’re currently interested in on any of the major channels or forums (Quora, for example) will make a big difference. The more opinions you receive, the better your decisions will be.
Unconvincing whitepaper and underdeveloped website
This leads to our next point. You should definitely avoid ICO projects with weak websites or white papers. Legitimate startups will always explain why someone should invest in the project and will also make efforts to display the potential value and some noteworthy future plans.
Be on the lookout for fake information or overly-bold statements. Bottom line, if the white paper of the website itself is unconvincing, then it’s best to stay away.
This is another major red flag. Is the team made up of respected members of the crypto sphere or are the developers anonymous or otherwise-unknown? Make sure you do some digging regarding the team’s or developer’s activity or history in the crypto community on Reddit and other crypto websites.
Keep in mind that most legitimate ICOs will always offer a relatively-accessible channel for communication between you, the potential investor, and a team member. Most times, ICO projects have dedicated Slack or Telegram channels for the public.
Overly-optimistic or vague roadmap
As mentioned above, it’s very important for any legitimate ICO’s success to convince their potential investors about the project’s true potential. This is yet another important issue in your quest of avoiding falling prey to ICO scams. Be on the lookout for an unrealistic development schedule.
Empty or non-existent code repository
Even if the website is pristine, even if the project announcements and the whitepaper seem legit, if there’s no code repository, then there’s no project to begin with, hence, you can spend your money and your time elsewhere.
Shady tokens with unclear use and in great numbers
A portion of the developed tokens should be made available in order to reward early investors before the project’s official public release. Be that as it may, if the total number or the percentage of supplied tokens seems exceedingly high, you should consider this another major red flag. Be especially wary of tokens that do not offer any real innovations or improvements upon any of the currently-known crypto technologies.
This might be the hardest one to spot so far. There have been multiple past examples in which new fraudulent ICOs have copied the content from other ICOs in its entirety, including logos and pictures. Once again, diligence, focused research, and the community at large can all help you in this regard.
We hope that this general guideline on how to avoid ICO scams will help you in your future endeavors as an investor.