Can You Spot a Scam?
The Blockchain revolution has opened up a myriad of possibilities for impact. The very premise of the technology is to incentivize consensus and build trust at scale to improve the operation of all sectors; from Finance to Healthcare. The scope of opportunities in its application is truly unprecedented.
A range of projects are leveraging this technology to bring novel solutions to deeply ingrained issues, such as — in the case of LendLedger — enabling access to credit to over 250 million small businesses which are financially underserved. However, as is widely known, many projects are also trying to take advantage of this burgeoning space to trick potential investors.
A recent study by the ICO advisory firm Statis Group came to the conclusion that over 80% of ICOs launched in 2017 were scams. Making headlines this past week was StellarSHADE, a project which briefly traded with great success, on the StellarX decentralized exchange. StellarSHADE was claiming to be “an anonymous blockchain that is being built side by side with the technology & speed of Stellar,” in reality it was nothing more than a sham. The individuals behind SHADE created one single wallet which created 800 million SHADE tokens. They then designed a scheme involving scarcity of tokens and bait giveaways to fool people into sending them XLM in exchange for basically nothing
These fake ICOs not only bring down the reputation of cryptocurrency as a whole, but are damaging to all the other viable projects operating in the space and fighting to make a meaningful difference.
So how can community members like you spot a scam from a legitimate ICO? Here’s a few things to keep in mind!
Social Media Presence
A lot can be gleaned from a project’s social media presence. More specifically, one can look into whether a given project seem to only care about generating investment or excitement about their token sale versus the industry issue the project is claiming to solve.
Here are some questions to ask yourself: Is the project posting regularly on the most popular social media, such as Twitter, Medium, and Telegram? Is it creating and generating its own, personalized content? Is it responding to questions that are not only investment related?
If a project is presenting itself as a thought leader, rather than solely focused on investment, this shows a commendable degree of dedication to the crypto space at large. The team should be excited about being contributing to the way the space is conceptualized, and actively advocate of behalf of the platform on which they are built.
Another facet to pay close attention to is a project’s interaction with the blockchain industry. Does the team seem to be attending relevant industry events or are they just communicating about the sale? Is the project connected to and/or getting endorsements from established experts and stakeholders? Are its engineers well know in specific industry circles and are they seen discussing code with other developers?
Ensuring that a project is alive and present on and offline across key blockchain forums points to greater credibility.
Plagiarism
While borrowing ideas from other projects is quite common in the blockchain space, word-for-word plagiarism should not be. And the easiest way to spot plagiarism is by reviewing a project’s whitepapers.
The Wall Street Journal’s analysis of 1,450 ICO’s last year found that 111 repeated entire sections word-for-word from other whitepapers. Indeed, the scam ICO Taichichain, which many believe was run by the same individuals as the StellarSHADE project, was ousted after it uploaded the project XEM’s whitepaper and claimed it as its own. Similarly attention was drawn to StellarSHADE after the FAQ’s they posted on Bitcointalk closely resembled those from Taichichain.
Generally, the strength and level of details of a project’s whitepapers are most commonly referred to as key differentiators, and indicators of overall project quality. So one should always review them in detail. But, for those who don’t have the time, a quick googling of a project’s content can also help spot any that sound too similar to be true.
Team
In a new space like the blockchain and crypto ecosystems, having a strong team is everything. The team and advisors are a project’s greatest assets; not only in terms of being the ones who will determine if a project succeeds or fails, but equally in garnering attention from the community. If an organization isn’t publicizing their team it’s a cause for concern. Equally if individuals in a team aren’t publicizing the project, this is also dubious.
The same Wall Street Journal analysis also found that at least 121 of the 1,450 projects they surveyed didn’t disclose the name of a single employee. Similarly there were a number that affiliated individuals with their projects who didn’t actually exist. These ranged from advisors to CEO’s and many of these individuals were no more than stock photos. One of the most outlandish cases was startup Premium Trade, who’s five-member executive team’s images were simultaneously being used on nearly 500 unrelated websites.
A great way to verify the true existence of a team is to look into ICO listing sites that require team members to go through KYC. These include ICO Bench and Found ICO amongst others.
Community Engagement
Finally, the last validating factor is you, the community.
It should count as a red flag when a project doesn’t engage its community’s help in iterating its project. After all, with a public token sale, we’re looking to get you involved and excited to support our ideas! Even in cases where the utility tokens aren’t relevant to all potential ICO contributors, questions and comments are incredibly valuable.
The community’s continued engagement and monitoring is to be cherished. Indeed, with the StellarSHADE scandal the project was not brought down by official regulators but rather through a post by a community member on Reddit. So when in doubt — check with those around you! Be it in person at a meetup or on Reddit, Telegram, Bitcointalk or GalacticTalk where there are thousands of people like you wishing to understand the space.
