How to detect that ICO is a scam

A good friend of KICKICO and a blockchain expert, Vladimir ‘Menaskop’ Popov, has written an article on how to avoid entering a scam ICO. As a platform for ICO’s we find this topic very important and build a team of advisers and moderators to evaluate submitted projects. Enjoy a summary of Vladimir’s useful article.

Scams are as old as Internet is. Google it and you will get thousands of results. Some people make mistakes, some people make money off it. It happens in many areas — banks, energetics, ICO’s too.

If one is to classify scams, there are several ways to do it.

Time

  1. Short-term
  2. Long-term (a very distinct example — the notorious OneCoin).

Complexity

  1. Very simple. Those are quite like spam — out of thousands recipients there will be several stupid enough to fall into scam and give money.
  2. Moderate. Here you will find a decent idea, ‘team’ and some backstory. A thorough analysis will show that there is a reason for doubt.
  3. Complex. In this case it may be very hard to detect.

Intention

  1. When a scam is intended and founders plan to disappear with collected money.
  2. ICO turns a scam due to certain circumstances (see MtGox case). Sometimes the team fails to deliver due to lack of ability, motivation or an internal conflict.

Evaluating an ICO use the ‘4T rule’. Does a project have the following worked out:

  1. Team
  2. Tech
  3. Theme
  4. Token status

Investigate these factors to figure out if the project is real.

Look the team up. Do not limit it to Facebook and LinkedIn profiles, find more social activity from them. If there is no trace of discussions, participation in any groups or projects — it is a red flag.

Check the advisors first — they value their reputation and will react if their name is misused.

Investigate the legal side. Look up the registration address, location — you can even send an offline mail to the office, this check helped me twice! Sending a request to the business association can also deliver proof.

You can even google the cell number and e-mail — you may find traces of previous activities in the far corners of the web, and it will tell you a lot.

It may not be easy to evaluate the tech if you are not a specialist. Well this is what forums and professional communities are for! Just ask a question there, and maybe ask the project team on their Slack/Telegram to compare the answer. Scammers would give evasive or unclear answers.

Speaking about the theme, or concept, check if there’s a market for that kind of product and who are its rivals. Even non-scams can be quite weak in this field. Scam can be seen by an over optimistic or too general description.

Check the time it took to get from the initial idea to prototype or ICO.

But the main concern is, how a blockchain project will take over the traditional business in this field? And if there is no such business at all anywhere in the world, it’s a bad sign.

Last but not least, the token. After SEC & MAS reports, everybody knows one can’t just issue ‘randomcoins’. So if a token is not supported by anything (i.e bonuses, ecosystem, company share etc), its issuer might be a scam.

More things to consider: token presence and description in the White Paper, RoadMap etc; token economy and emission, required turnover to support the value (for example, ETH requires a turnover of 5 000 000). Not every project takes that into account but it’s crucial to be certain that investment won’t turn to ashes.

Do not hesitate to use services like ICOtracker, ICOrating, ICOstats etc.

Pay attention to the tinyest detail — even the domain registration date can be important. A project with history would date back for at least 6 months. Check the previous products of the team using https://web.archive.org/, catalogues and traces of SEO promotion if necessary.

ICO is a new business and that always means high risks.You don’t need special method or complex technologies or big data to detect most scams. A little patience and investigation will protect your investment funds just right.