Initial Coin Offer (ICO) Scams

An Initial Coin Offer (ICO) is a popular way for crypto start-ups to raise funds. It is comparable to an Initial Public Offer (IPO) in the stock exchange. Both have the goal of raising funds for the business. There is a big difference here that ICO start-ups are quite risky because cryptocurrencies are volatile and their trading is completely unregulated. Their value rises and falls pretty fast because all the factors that affect cryptocurrency stability are not fully documented and understood.

Nevertheless, ICOs are popular in the crypto market among investors - a fact that has opened it up to a world of scams.

How to Identify ICO Scams

• Team visibility and credentials: Check that you know the team members behind a crypto venture you want to invest in and that their skills are suited to the task. Use LinkedIn to see their professional profile and qualifications. Fake profiles are a dead giveaway of a scam.
• Documentation: Look at the publicly-available material like their website, whitepaper, and GitHub profiles for the developers and their work.
• Assess the focus of the venture: Scam crypto ventures are big on talking about the money they will make you when you invest with them as opposed to genuine ones that talk about the technology they have and how they’re better and will take the market on merit.
• Gauge the goals of the venture: Do they seem realistic to you? Are the promises made within reasonable limits? Scammers promise extremely high gains that are not tenable.
• Check how they handle critics and criticisms: Legit ventures will try and explain then leave it at that. Name-calling and arguments are a sign that the company may be unprofessional.
• Expert opinions: Look for a review on YouTube, Twitter, Reddit, and other sites to get a picture of how others view them. Watch out though, if the reviewer shares some kind of referral link then it may be an advertisement rather than a review. Scam crypto ventures will have some negative reviews or exposé somewhere on the internet.

Types of ICO Scams

Exit Scam

This is by far the most common. It happens when a crypto venture is promoted as poised to grow and gain its investors "high yields". Then when investors have put significant amounts of money in, the venture operators shut it down and disappear with the money!

“OneCoin” was touted to be the cryptocurrency that would beat Bitcoin but ended up as the most famous crypto scam to date! The founder folded and disappeared with millions of investors cash who were waiting to reap big from her new and strong crypto.

Thankfully, ventures that come up like this have these tell-tale signs:

• The promise of guaranteed profits. The one sure thing about investing in cryptos is that nothing is ever guaranteed.
• Great incentives for people to re-invest gains realized the first time. This keeps investor’s cash in their control when they need to “exit”.
• Testimonials of investors who have been successful with them. These are fabricated stories that have the effect of giving their venture legitimacy. Some of the testimonial photos are of famous people who have no idea they are being used this way.

High Yield Investment Programs (HYIPs)

In the investment space, this is another name for Ponzi schemes.  Don’t let the name fool you. It is organized and executed like a Ponzi! With promises of extremely high returns on investment, these scams draw many people who have get-rich-quick dreams. But they end up losing their money.

Phishing URL Scams

Some ICO scammers have put up fake websites that match real crypto trading websites. They redirect to phishing sites which trick users into making deposits. But the wallets are compromised and transactions are irreversible. Traders only lose their currency.

Exchange scams

Developers of cryptos are known to mislead investors. Some claim their ICO will exchange at higher than possible rates. Investors come in with expectations of making huge gains in a short time.

 
How to Avoid ICO Scams

• Always do your due diligence in verifying the credentials of the team and their cryptocurrency by looking them up online.
• Compare with cryptocurrencies that have been around longer, like Bitcoin, for signs of legitimacy.
• Never rush to invest in cryptos even when there is a limited time to buy-in. It could be a scam.
• Take social media cryptocurrency investment ads with scepticism. Avoid following given links to trading sites. These are mostly phishing links.
• Read widely on ICOs from reliable sources.
• Contact certified ICO experts for advice before investing.