How to Spot ICO Scams - Coindoo

How to Spot ICO Scams

Editorial Team Avatar
Oct 4, 2018
6 min reading time

Cryptocurrencies garnered the attention of mainstream curiosities over the past couple of years, and with them, so did ICOs (the abbreviation of Initial Coin Offerings). Just as cryptocurrencies represent a sort of upgrade for the financial sector, the same could be said about ICOs, which are basically the digital equivalent of an IPO, an initial public offering.

An ICO is a modern and supposedly very efficient fundraising tool as it allows the general public (investors or simple people aiming to invest in cryptocurrencies) to buy into and support a company or a product. These startup companies aim to crowdfund capital by selling their own tokens in exchange for generally accepted cryptocurrencies such as Bitcoin or Ethereum.

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Investing in an ICO can potentially lead to big returns, just like most Ethereum, NEO, and Ripple early investors can tell you. However, not all ICOs are legitimate. In fact, so many ICO scams have made their way into the digital trading ecosystem that it’s somewhat understandable why most investors are extremely reluctant towards or are bluntly against ICOs.

Right off the bat, it’s important to note that there is no perfect recipe or guide towards determining the legitimacy of an ICO. However, the key to determining if an ICO is legit or a scam is research, lots and lots of diligent research. There’s always the option of using a renowned ICO rating website to determine the legitimacy of an ICO. However, even these websites may prove to be untrustworthy or reliable. In short, the best way to make sure that you won’t get scammed is, again, to do your own research.

Without further ado, here are some red flags and various important aspects one should consider before committing to enrolling in an ICO.

Poorly made, unmaintained, or copied website

A website is one of the first things you should analyze in order to make sure that an ICO is legitimate. Most fraudsters don’t invest in high-end websites. Hence, a poorly made website is a very big red flag. Of course, a website is not a fully reliable indicator that an ICO might be a scam, but if the website seems to be a “generic” one, you should be very careful.

Shady/anonymous/fraudulent team members or advisors

Since ICOs are public “events,” it’s common sense that the developers and team members behind the project should also be listed. By holding an ICO, a startup company is basically asking its potential token holders to TRUST that the developers will deliver a working or potentially useful product (instead of running off with the money).

Therefore, it’s only natural that the team behind the ICO should be able and willing to back up these “promises” and claims with verifiable and publicly available identities. To put it as simple as possible, if a team refuses to identify itself, then investors should be very wary about the project. There have been ICOs where the hackers used basic images and the names of ordinary people to pass off as legit team members.

The token doesn’t have a specific use case

Here’s one aspect that’s also extremely important. For starters, it’s important to know exactly how the company intends to use the token as well as the blockchain technology behind the project. The token should be used almost exclusively for boosting the development of the platform. A good example of shady tokens are tokens that are simple digital currencies without actually bringing forth any real innovations or improvements upon the existing blockchain and crypto technology.

Another big red flag is if the structure of the token distribution does not make sense. For example, having a majority of tokens reserved for the team members and advisors can be considered a clear sign that the team favors gain over development.

Unoriginal/questionable/unclear/bad whitepaper

Right from the start, a whitepaper is one of the most important if not the prior aspect of any ICO, as it’s basically the project’s profile. A whitepaper is a summary of all the required information, and it should convince that the project is worthy of support.

Be on the lookout for overly-optimistic roadmaps. For example, if a whitepaper sets an unrealistic development schedule, that’s a bad sign. Furthermore, investors should ensure that the whitepaper is unique, that the grammar is good, and all the information is authentic. If an ICO promises fixed dividends and profits, then there’s a good chance it’s a scam, as the market is simply too volatile.

Simply put, if the whitepaper is not done properly and if it lacks information, research and vital references, better stay away from the ICO altogether.

Other noteworthy aspects worth checking

Usually, all ICOs should go through a pre-ICO stage. Therefore, it might be a good idea to check if the number of tokens advertised is respected during the actual ICO itself.

Behind every ICO there needs to be a company. If there isn’t any legitimate company incorporated in the ICO information, then this is yet another red flag. As a potential future investor, you should be able to check the company based on the registries from its specific country. It should be considered a plus if a company is registered in a country that has clear regulations and guidelines for ICOs (Switzerland, Malta, Gibraltar, etc.). In short, you should be able to cross-check information to see if the company actually exists.

An unmaintained code repository, or an empty GitHub or BitBucket repo, for instance, is something that should be enough to put off any serious investor. For instance, say a project is listed or advertised as being open source but yet has an empty repository page, it’s a fairly clear indication that something is not right. Another aspect that should be taken into consideration when researching an ICO is whether the tokens are coded in smart contract form.


As an ending note, it’s worth highlighting that these tips, symptoms, red flags, and advice may not be enough for ensuring the full legitimacy of an ICO. However, all the tips listed here should provide a solid plan towards ensuring that you won’t fall victim to an ICO scam. Good luck!

* The information in this article and the links provided are for general information purposes only and should not constitute any financial or investment advice. We advise you to do your own research or consult a professional before making financial decisions. Please acknowledge that we are not responsible for any loss caused by any information present on this website.
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