As new cryptocurrencies enter the market, an ICO (Initial Coin Offering) can seem like an ideal opportunity to become an early investor and acquire tokens which may, eventually, end up becoming worth far more than you paid for them. However, it is also important not to get carried away by the hype and to understand which ICOs seem trustworthy and above-board, and which are scams. This article will help you assess whether or not an ICO is a good investment opportunity, in listing some of the ways a scam can be identified.
Signs of ICO scams: Unnecessary use of a blockchain
While a blockchain system can be very useful for particular purposes, this does not mean that every new digital project needs to be conducted in this decentralized way. Even projects that require cryptocurrencies to run do not necessarily require their own native currency:
Why not use Bitcoin, or Ether, or any of the already available currencies, instead?
Ask yourself whether there is a good motivation behind the project’s development as a crypocurrency with a decentralized blockchain system. If not, either the cryptocurrency is unlikely to become successful – since it does not fill a gap in the market – or the ICO is a scam.
Signs of ICO scams: Issues with the whitepaper and/or roadmap
Any venture worth investing in will have a whitepaper, which outlines the project, identifies the team involved, discusses technical details, notes how the venture will be using blockchain technology, and so on. It is thus important to, as an investor, take a good look at this whitepaper. Whereas it is easy to set up a basic website for any project, whether legitimate or not, an in-depth and well-considered whitepaper, outlining realistic goals for the project, is a good sign that the ICO is indeed legitimate.
Similarly, investors should scrutinize an ICO’s website for a realistic and detailed roadmap. Such a roadmap is basically a timeline, outlining the venture’s immediate and long-term goals, and a lack of a roadmap can indicate that the ICO only exists to raise money in the short-term, without any concrete future plans to actually develop the supposed cryptocurrency project.
Signs of ICO scams: Lack of information about the team involved
Another major red flag is an anonymous team of developers. Unlike a blockchain project itself, an ICO is not a decentralized venture; in this case, one is in a very real sense handing over money to the developers in exchange for tokens to use with the blockchain. It is thus important to know who the developers are and what their previous experience is; if they are named, it is a good idea to look them up online, for example on websites such as LinkedIn. In this regard, it’s important to scrutinize the work experience of the team members, to assess whether this is credible, as well as any potentially fake partnerships that may be touted by the ICO. Similarly, if any advisors are listed for a particular project, one should try and ascertain – either by researching this online or by contacting them directly – whether they are actually involved.
Signs of ICO scams: Mining structure unfairly benefits the developers
Finally, then, it is also important to examine the mining structure – as set out in the whitepaper – of the cryptocurrency involved in the ICO, to assess whether it seems fair. Whereas it is normal that a certain number of the initial tokens should go toward the development team, who in this way have a stake in the project’s ultimate success, it’s important to examine the percentage of tokens kept aside for the developers. If this is a large majority of the tokens, something is awry, and the ICO might just be a way to make profit for the developers, without any further benefits for investors.
Whereas an ICO is always a risky venture, the above tips should help you assess whether you’re dealing with a great investment opportunity or a potential scam!