How to spot a Scam or Fake ICO?


In the world of ICOs, investing is a bit like gambling at times. This is because according to the reality of the figures, 46% of ICOs will fail. This may actually be rather optimistic view of ICOs.

However, as we invest in new opportunities while risky, there could be huge ROI if we choose the right one.

So it comes down to what the experts say about how to spot a fraud before you get duped. I’m not an expert by any means, but in this article I will compile a list of some red flags and warning signs to watch for. As the SEC buckles down on the legality of ICOs and whether they are securities, it’s important for the public to know how to do due diligence. This ain’t your regular crowd-funding, scams are abundant and many ICOs don’t even relate to a real product or much of anything but hype.

Where Failed ICOs Go

If we know that nearly half of ICOs basically become dead-ends, then why do we do it, and how can we avoid those situations.

“Abandoned Twitter accounts, empty Telegram groups, websites no longer hosted, and communities no longer tended are par for the course,” the survey said.

Startups and ICOs need as much hard evidence, what might be some of the warning signs?

1. Poorly Implemented Website and Whitepaper

An incomplete or poorly designed whitepaper and website should be a huge red-flag. If it doesn’t sound legit, it probably isn’t.

2. Empty repositories for open-source projects

Actual code, you know the kind that should be on GitHub. If an ICO project is proposing open-source code, an empty or nonexistent GitHub is not right, and a tell-tale warning sign. Public blockchain projects ride on the trust that they are open-sourced, this means they have been uploaded to repositories so anyone can examine them. A blockchain dev should be able to spot if the published code matches what the project says it’s capable of doing.

3. Lack of Roadmap or underdeveloped or unclear Product Roadmap

Proper ICOs have clearly defined roadmaps where detailed documentation ensures a business model that makes sense in the real world. A lack of this kind of clear thinking could indicate the project is a scam more interested in short-term gain than a concrete innovation and product that will make it as a startup and or be disruptive to an industry. The development team has to have a roadmap that is sophisticated where funding objectives are balanced properly with a clear timeline for all potential backers to fully grasp.

4. No Token Use Case for Product

If it’s an ICO it needs to have a blockchain technology based token and a clear explanation of how this will work. Failure to prove this, means it’s probably not legitimate.

5. The Team Lacks Credibility and Expertise

Research carefully the background of all of the team members, are they who they say they are? Do they have expertise and significant experience? Are they credible leaders that you would trust with your financial investment? Check their profiles on Crunchbase, AngelList, Linkedin (with their grandmother), just kidding. Not everyone can become a “crypto expert” over night? Do they even have a technical background, or is is the entrepreneurial talent soft like sales or marketing based? You don’t want celebs promoting the ICO, you want people with solid technical skills, vision and substantial evidence they can back their claims.

6. The Mining Structure Favors the Dev Team Disproportionately

Are they focused on making their product better or padding their pockets? The easiest way to tell is an accurate litmus test for scame, that is how the funds of the ICO are going, thus the supply schedule and mining plan can help you cross-reference the validity and data-points of the actual intention of the founders. If they have a pre-mine that favors the founders too much, it’s definately not a good sign that it is a serious project.

7. Has the Team Attended Blockchain Conferences or Written Thought Leadership in the Space?

So you check out their LinkedIn and it seems to check-out. But have the entrepreneur's been on the blockchain scene for a while, have they attended conferences in their field? Startup entrepreneurs who are serious about entering a new field will carefully learn about it and even write articles about it, they will have some authority and connections in the space, do they fit the bill? If not, it could indicate weak or inadequate experience in the field. If none of the team’s members have made a public appearance on the company’s behalf, you should consider it as a red flag. Just because the founder checks out, doesn’t mean his team has. If their team hasn’t, that could be a bad sign.

8. Is there a great Underlying Product Behind the ICO?

An ICO is a neat way to crowdfund, but listen these are just startups. They still need to have a killer idea, vision and product you believe in rationally and intuitively. Otherwise, if you have even the slightest bit of doubt, run. Really, don’t even listen to them. This is a worse failure rate than traditional tech startups, and that’s a sad statistic to say the least.

9. Is the ICO regulated or meet legal requirements in its Country of Origin?

In an age of unregulated and sketchy ICOs who do not know the legal boundaries of what they are doing, it’s important as an investor that you understand these to some extent. Non-professional investors are at an extreme risk here if they cannot seek legal council about the ICO they are about to invest in. The project must have tried and succeeded in adhering to all the rules (no matter how new), typically a good ICO will be a company located in a country where you have a legal standard for doing business. If the company is located on some tropical island, that may not be a great sign.

There are no doubt many other tell-tale signs of a weak ICO or crypto token pre-sale. These are the ones that jumped out to me while reviewing some of the literature on the topic. It is a bit generic and common sense, but you’d be surprised how many unsuspecting first-time crypto investors don’t do their due diligence. I hope this helps someone out there.

Comment below what else you look for as poor signals for ICO legitimacy and potential fraud, I am open to amending the article with crowdfunded additional material.