How To Avoid ICO Scams

As the world gets increasingly familiar with – and enthused about – the cryptocurrency-based marketplace, we have seen substantial growth in Initial Coin Offerings (ICOs). These generally represent a new-age version of the IPOs issued by companies who have wanted to raise capital by opening their governance to the investing public. ICOs also seek to raise capital, and invite everyone from individual investors through to sophisticated investment houses to send their Bitcoin or Ether across to join in the fun.

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On the plus side, ICOs represent a modern version of crowdsourcing for companies, and its use of tokens and sophisticated approaches to leveraging, sharing, and building is completely redesigning the investment landscape.

But investors should beware. The one thing that has not changed over the centuries is the feverish activity of fraudsters and thieves to take advantage of peoples’ naiveté and enthusiasm.

An ICO basically offers investors the opportunity to purchase tokens from the issuing company in exchange for Bitcoin, Ether or other virtual currencies. Some ICOs allow fiat money to be used as well. These tokens represent participation in the company’s life or project, and they also take on value of their own, and can be sold or traded on other markets. The first half of 2017 showed enormous growth in the ICO market attracting $327 million in capital to participating startups and eclipsing IPOs for the first time.

It must be remembered that IPOs are tedious and expensive to participate in because of each country’s securities and investment laws, put in place to protect investors from the very traps they are now falling into with ICOs. Prior to the statutes, any sucker could be invited in to a “can’t-miss, once-in-a-lifetime, guaranteed-win opportunity only to see their savings, and on occasion and entire economy or segment thereof come crashing to the ground (see October 1929, Savings & Loans, Lehman Brothers, Barings Bank, Sub-Prime Mortgages, General Motors, etc., etc.).

But because of its virtual, centerless nature, this is a marketplace that knows few borders, and which lacks solid legal guidelines, making it fertile ground for scams, theft, and failure. Coupled with this is the sheer enthusiasm of the investment community, eager to get in on an apparent golden opportunity, an unfettered by the traditional legalese and middlemen of more regulated marketplaces.

So how can someone tell the difference between an outright fraud, an overhyped “penny stock” operation, a Ponzi scheme or someone spoofing a legitimate ICO? The answer in short is timeless and classic: diligence. Take the time to figure it out, and never click on links.

First there are the “all hat and no cattle” companies, whose offering or end product is overhyped with buzzwords and vague descriptions, but which cannot actually deliver any type of functioning product or service. What you should look for:

Secondly, there are the spoofers who will create fake sites that pose as the site of a legitimate ICO. This is very easily done, and requires investors to carefully check URLs for spelling and https status. Similarly, wallet addresses can be spoofed, meaning funds are directed elsewhere than the legitimate company. Not only are websites to be suspected, but all forms of electronic communication, from phishing emails to direct messages on Twitter, Slack, and elsewhere. Never click on links inside emails. In life, as well as ICOs, if a company is legit, you should be able to contact them manually, without using the supplied links. Use Tokenmarket to confirm the correct URL for a cryptocurrency ICO.

Finally, stay alert. There are some great, legitimate developments happening in the cryptocurrency investment space, and companies like Iconomi seem to be making great strides in substantially rewriting the rule book on how assets can be managed and traded in the new economy.

ICO scams will always move in lockstep with the marketplace, learning from the innovators and staying five minutes ahead of the average investor, to capitalize on the knowledge gap. To avoid these scams now and in the future, take your time. Question everything. Research and confirm independently. Seek secondary and tertiary proof sources. Never click on any supplied link. Use your head, and always remain skeptical.