ICO AND HOW TO SPOT A SCAM

   How to spot ICO scam.

ICO stands for Initial Coin Offering. It’s an event, sometimes referred to as ‘crowdsale’, when a company releases its own cryptocurrency with a purpose of funding. It usually releases a certain number of crypto-tokens and then sells those tokens to its intended audience, most commonly in exchange for Bitcoins, but it can be fiat money as well.

As a result, the company gets the capital to fund the product development and the audience members get their crypto tokens’ shares. Plus, they have complete ownership of these shares.

The key goal for every ICO participant is to help fund a project that they personally consider interesting and appealing. However, there is an additional opportunity to make a profit in the process.

In most cases, the crypto-tokens released during an ICO are sold at a fixed price denominated in Bitcoins or US dollars. That price isn’t backed by anything but the community’s faith in the development team to release a finished product at some point in the future, so it’s usually pretty low. After the project is developed and launched, the tokens’ value becomes secured by a real, working product. And that almost always leads to an increase in price. When this happens, the original backers may sell their tokens for a substantial profit.

There are several signs of a potentially fraudulent ICO: anonymous developers, the lack of an escrow wallet and unclear or unrealistic goals are among the most telling ones.

The cryptocurrency community has had to deal with a number of scam ICO campaigns over the past several years. 

There are some red flags which are common for most of these campaigns and by detecting them you can avoid potentially dangerous companies.

• The developers of the project are either anonymous or unknown to anyone in the community. If the people behind an ICO don’t put their reputation on the line, they are more likely to feel safe while pulling a scam. 

• No escrow wallet for contributions. If all keys to the contributors’ donations are concentrated in the hands of the owners of a project, nothing is stopping them from running away with the money. 

• Unrealistic/unclear goals. When a project doesn’t have a clear-cut, realistic road map, it means that the people behind it don’t know what they’re doing, at best. At worst, they don’t really care because they aren’t actually going to do anything. 

• Lack of transparency. Today, showing work-in-progress stages of your project to the audience is considered an industry standard in crypto. If the developers don’t release code snippets, demo/beta versions of their product, behind the scenes videos or other kinds of reports on their progress, it is possible that they don’t have anything to show at all.

If you have found an ICO campaign which displays any of the above signs, and, especially, any combination of them, it is best to avoid them.

Excerpts from The CoinTelegraph 

ICO Explain by Andrew Marshall
Mar 07 2017