Tips from the NOIZ Team: How to Avoid ICO Scams
Cryptocurrencies have given rise to a new a type of crowdfunding, or means of raising funds, known as an Initial Coin Offering (ICO), Initial Token Offering (ITO) or a Token Generation Event (TGE). Each of these terms describes the same thing: raising funds by offering the public a share in coins or tokens that exist on a blockchain. Unfortunately, this method of fundraising is very prone to scams.
A simple analogy can be drawn between the well-known initial public offering (IPO) and an ICO. In an IPO, fiat currency is exchanged for shares by investors, whereas in an ICO funds are raised when a quantity of the crowdfunded cryptocurrency is sold to investors in the form of “coins” or “tokens,” in exchange for legal tender or other cryptocurrencies such as bitcoin or ethereum.
These tokens are promoted as future functional units of currency in the project environment if or when the funding goal is met and the project launches. Due to their relative newness, the regulatory environment concerning ICOs and cryptocurrencies is still evolving and the inherent nature of an ICO also renders them susceptible to scams. A majority of projects behind ICOs do not present a functioning product or service before the ICO.
According to research by Ernst & Young, over 10 percent of funds raised by a sample of 370 ICOs were lost or stolen in hacker attacks. Given the ease with which scam ICOs can be set up by fraudsters, investors should be cautious before making an investment.
What to Watch Out for
Scammers creating illegitimate ICOs for the purpose of raising funds
It is relatively easy to fool investors by setting up a fake website, writing a white paper and selling tokens online — and then completely wiping out all traces of the proposed project.
The case of Confido, “a trustless escrow payment solution using smart contracts with a unique shipment tracking feature,” is a well-known example. Confido reached its modest goal and raised $375,000 in its ICO before disappearing shortly after. All its social media accounts disappeared, and LinkedIn accounts of its team members were either deleted or deemed fake.
Below is an image of the Confido’s official site, which no longer exists. At first glance, it is not easy to detect problems in the project, but upon closer examination of the information on the site some trouble points were found. According to the site, the funds collected in the ICO were escrowed by a company that does not actually exist. The key is to scrutinize the details.
Scammers taking advantage of legit ICOs
ICO participants are not the only ones susceptible to attack. ICO projects need to be highly vigilant of phishing attacks to prevent being victimized by scammers as well.
Phishing is a type of cyber attack in which scammers attempt to extract personal and financial information by sending fraudulent communications through reputable sources.
For example, fraud accounts posing as official admins on legit Telegram groups for “phishing” crypto wallet details is common in ICOs.
The high-profile, multi-billion dollar Telegram ICO was subject to a number of phishing scams. Fake website URLs, chain emails, and social media accounts propped up, posing as the official Telegram accounts. Below is an example of a fraudulent email from the “Telegram Open Network” asking recipients for fund transfers. The scammers were able to pocket funds supposedly equivalent to the legit Telegram token pre-sale.
How To Avoid Scams
Doing your own due diligence on a project can prevent you from falling prey to an ICO scam.
- Study the white paper: The white paper details the working plan and technology behind an ICO project. Try to gauge the strengths and weaknesses of the project, and identify the viability of the unique selling points of the token or service.
- Do a background check on the team: Examine the reputation and experiences on the members of the team via LinkedIn. Be sure to look out for any suspicious signs like lack of connections which may be a sign of a fake profile. Also search web browsers for team members and try to find content published by reputable sources.
- Scan social media platforms: Check the number of people and scan conversations on their Telegram or Slack channels and other social media platforms like Twitter, Facebook and Reddit.
How NOIZ Initial Token Offering (ITO) is Preventing Scammers/Phishing Attacks
NOIZ is taking precautions to guard itself against phishing attacks and we hope our community will stay vigilant as well.
The Know Your Client (KYC) form is a mandatory step that must be completed by all participants in our ITO. Participants must submit official identifying documents that are then validated by regulatory company Cynopsis.
We are monitoring activity on our social media channels and using bots to filter out spam on Telegram. This prevents people from sharing URLs, photos, wallet hashes, etc. We are also holding multiple account names so fraudsters have a harder time pretending to be us, with 2FA on all of our social media and personal accounts.
NOIZ is backed by a strong group of established partners and strategic investors including NDN Group, Hotmob, Blue Block and, and an experienced team including the CEO, Andy Ann, with 17+ years’ experience in digital media.
Lastly, we are writing educational posts like this one, to keep our community informed!
Always be vigilant before sending any investment to an organisation — do your due diligence.