Differentiating ICO Scams from Authentic Cryptocurrencies
The world of cryptocurrency is increasingly expanding, with newer options emerging on to the realm of crypto-sphere with each passing day. New crypto-tokens are unveiled each month, which brings a series of Initial Coin Offerings (ICOs) alongside their launch. The year 2017 saw one of the biggest crypto bull-runs of all time, with a ridiculous amount of investments being thrown into the crypto-universe. With huge stakes involved in this field, it lays down the basis for enticing scammers. When investors invest in less popular cryptocurrencies, chances are that they have invested in some fraudulent technology as well.
It is becoming harder to steer clear of those fraudulent activities and sketchy projects, especially when investors are looking to invest in newer ambitious technologies so that they can cash in at the very start and earn big when the project matures. With a very fast-paced development in the crypto-currency field, it can become very difficult for even experienced investors to safeguard themselves against scams. This article outlines some of the basic points to judge the legitimacy of a new project, without guaranteeing that the points hereby will ensure the success and realness of a blockchain startup (Reiff, 2019).
The Team behind the Project
If a project has an experienced start-studded ambitious team behind its development, it is bound to gather success and its ICO will be a much-anticipated event. Big names like Vitalik Buterin, the founder of Ethereum, and some other newer altcoins, can make the blockchain startups an instant success. For this very same reason, scammers create fake founders and administrative teams with forged autobiographies, in an attempt to lure people towards the project and rob them of their investments.
To protect yourself from such scams, it is best to research every individual on the team so that you can spot any loophole in a forged project. If you look up the developers on LinkedIn and you don’t find them or if they are there with a ridiculous number of followers with activities that don’t match, then that should be the first red flag. Also, the relevant experience of individuals gives plenty of information about the project. Judgments like these are what will eventually determine the legitimacy of the project.
Go through the Whitepaper
The foundation of every new blockchain technology is laid down by its whitepaper. Whitepapers can be widely revealing – a look into the details tells you a lot about the whole project. The whitepaper contains all the basics about the concept, background, implementation, strategy, goals, and concerns related to the project. Therefore, a rock-solid whitepaper might indicate an authentic project. Read up the whitepaper and check for unrealistic goals.
A whitepaper must be thoroughly and critically evaluated. It must be checked to see if it contains all related information, includes financial models, legal concerns, SWOT analysis and future roadmap. Blockchain startups that don’t make their whitepaper available to the public must be avoided at all cost, without any compromise.
However, it is still possible for a fraudulent company to come up with a very convincing whitepaper and deceive you into believing that it is genuine, as was the case was Plexcoin, which managed to raise over $15 million before US-SEC stepped in to take it down. This must be kept in mind and precaution should be taken.
Take Hints from Token ICO
Companies who are authentic and are ambitious about the project tend to make the ICO process very easy for their potential customers and are usually transparent with their dealings. On the contrary, fake start-ups create problems in the transparency process of the project. For example, they will not publish whole information, while they hide individual investors, and they will also hide their true figures. An investor should watch the progress of the ICO over a longer period to get ascertain the data provided on exchange sites. If the information does not get updated frequently, it is a big red flag.
Businesses also tend to hide information regarding the real numbers of their ICO sale, so that the potential investors do not find out how much has been raised. This is done especially when the cryptocurrency is not performing well and a lesser than expected amount has been raised. Also, this creates a situation of urgency, and the investors are deluded to invest in the technology as soon as possible.
Feasibility of the Project
While it is true that blockchain technologies with a strong basis presented in the whitepaper, followed with an equally appealing ICO holds considerable potential to outshine their competitive cryptocurrencies, it is also possible that they might still fail after enjoying few days of initial glory as the interest of the community fades out. Your investment is only likely to mature if the technology is feasible enough to get implemented and achieve its aims and goals. Having a strong concept is important but what is more important in the long run is the possibility of its complete execution, which is why it is important to check for ridiculously bogus goals.
Companies try to show the feasibility of their project by being transparent. Businesses with outstanding concepts and models are likely to showcase their potential to the investors by being completely transparent. Therefore, looking for companies that are transparent in their information and data will help you find an authentic project.
Caution is Important
Even the most ambitious cryptocurrency projects sometimes get into trouble for having shady and speculative sources of investment. The thought of getting rich through an investment usually looks tempting to seasoned investors but the truth remains that this might attract them to risky areas. For every new investor, it is highly recommended that they remain cautious while searching for newer options.
Thorough research needs to be conducting before one decides to invest in any cryptocurrency, putting every detail into consideration. If an important piece of information is missing, it shouldn’t be overlooked, rather it should be seen as a clear violation of transparency and legitimacy.
Reiff, N. (2019, June 25). Investopedia. Retrieved from Investopedia: https://www.investopedia.com/tech/how-identify-cryptocurrency-and-ico-scams/