14 ICO Red Flags: Guide to Spotting a Crypto Scam

First published here on my Steemit blog. Follow me @MichaelLuchies.

Unfortunately, ICOs will always be associated with scams. With Twitter, Google, and Facebook all banning ads, this association has been cemented until the day nearly all scams are prevented and only legitimate projects launch ICOs.

So how do we get rid of these scams? We stop supporting them. We stop giving these thieves our money and cryptocurrencies.

To do this, we need to arm ourselves with information so we can all become educated, scam-proof consumers. From my experiences navigating airdrops, bounty campaigns, and reading and writing about ICOs and scams, I’ve picked up some things that the majority of scam ICOs share. This DOES NOT mean that every ICO that shares one or two of these characteristics is a scam. Some are just really bad projects.

Here are 14 ICO red flags to look out for:

1. How it Works Isn’t Clear

I’ll be the first person to admit that deciphering technical lingo is not my specialty. I am not an expert in coding, artificial intelligence, virtual reality, or robotics, nor should I have to be to quickly understand how anything built on top of the blockchain works at a basic level, and neither should you.

If you can’t understand how a company operates and what their specialty is, run away. Although this might not be a scam, it does most likely mean one of the following four things:

• A. The company can’t figure out how to explain it clearly.
• B. There is no clear, unique value to this project.
• C. If expertise is required to be a part of this project that you don’t have, you will need to either dedicate yourself to learning it or walk away. Don’t invest in something you don’t understand.
• D. It’s a scam.

2. No External Press or Buzz

Legitimate ICOs spend a lot of time, money, and energy marketing their team, coin, and company. If you search for the company online and don’t find articles, press releases, or information about the project outside of what they themselves are publishing, this is a warning sign. And if half of the first page of results are questions on forums asking if this coin is a scam, then it’s a scam.

3. Little to No Team Information

Coming from the startup world, I’ve seen the world’s greatest ideas go completely wasted because the wrong team was behind it. There is no idea or project that will rise above a bad team, so naturally, we should look very carefully at a team before getting involved in any ICO or cryptocurrency.

If the team members aren’t listed on their website, or there is just a first name and an avatar that isn’t of an actual person, like a cartoon (I saw this recently after being asked to look at a project), alarm bells should be going off in your head. This likely means that the people working on it don’t want you to know who they are, or they aren’t confident in how you will perceive their team. Regardless of the reason, if you can’t find information about the team and their key employees, close your browser and start looking at other ICOs.

Galen Moore makes another good point in here article on ICO red flags. “On any project, one thing I like to do is go to the team page and look up the first technical role listed. If the person in the role doesn’t have a LinkedIn profile that lists the project as their full-time job, I stop reading.” You should too.

4. Non-Existing or Incomplete Whitepaper

A whitepaper explains in detail what the project is and why people should believe in it. If it doesn’t exist, neither should any hope or belief in the company.

Over 80,000 people, myself included, signed up for an airdrop of a fake company with a “yet to be released” whitepaper. The company later switched all its social media channels overnight into a brand that promoted airdrops (airdropking.io pulled off the scam).

5. Guaranteed Return

Scams need a way to hook you in order to make you overlook common sense. One way they do this is by guaranteeing ridiculous returns in exchange for your investment. No company can guarantee returns on an investment in their coin or stock. If you see guarantees tied to a cryptocurrency project in any form, it’s very likely a scam.

6. Lofty Coin Price Goals

Even when there is no guarantee, a common sign among scam coins are lofty projections featured on their website detailing that in just a few months investors could be looking at 100x returns, or even more. No legitimate company would make these claims. Companies have to carefully outline their plans and expectations without promising the world and failing to deliver, which would crush any trust people have put in those projections.

Don’t fall for price goals, which are almost always just another way to draw your attention away from the real details and non-existent potential of the project.

7. Unclear or Unrealistic Roadmap

Starting and building a successful business or project takes a lot of careful planning. With cryptocurrencies, we are able to see the plans of a project and their roadmap, which details the company’s activities for the next several years. A strong roadmap has clearly defined goals and accomplishments spread out over a realistic amount of time. If a roadmap includes price targets for a coin or is unrealistic with goals that even more experienced and developed companies couldn’t accomplish in a short timeframe, move along without adding this crypto to your portfolio.

8. It’s a “Lending” or “Investment” Platform

DavorCoin.io

From BitConnect to DavorCoin, which are both widely believed to be Ponzi schemes (we can all agree on that by now, right?), so called cryptocurrency lending platforms are bad news. ICOs claiming to be a lending platform or an investment platform are going to rank very highly on the “how scammy is this project?” meter.

9. “No Risk”

Scams have to try harder than legitimate projects to convince you that you should give them their money, and they will try about anything, including stating that there is no risk of losing your money, which is obviously a lie. No investment is risk-free, and any project claiming to be a cryptocurrency has risk — a lot of it.

10. Non-Existent or Low-Activity Social Media Channels

Real projects put time, care, and money into their social media channels. They need to raise awareness to the great work they’re doing and gain support for their ICO. Inactive accounts and low followings could be the sign of a scam, or at the very least, a company that isn’t getting any traction building a community around what they’re doing.

11. No Clear Niche Focus

Facebook, Google, Apple — these companies all began with very small and specific niches they were trying to fill. Once they dominated that niche, they grew into something much bigger. Startups, including ICOs, that are trying to be everything to everyone will almost always fail, and in the crypto space, this is also a sign that a project might be a scam.

Take BitConnect for example. There was no clear focus because they weren’t actually doing any of what they said they were. With a clear focus, it’s easier for people to detect that it’s a scam. Stay away from any startup who claims they are going to be the all-in-one solution to something as deep and complex as cryptocurrency.

12. Advisors Are Not Willing to Put Their Name on the Project

This is closely linked with #3 (Little to No Team Information). Advisors play a key role in startups, and especially ICOs. In exchange for a small ownership stake, advisors help the founding team overcome early challenges and establish partnerships. What advisors are listed on the project and what are their backgrounds? If no advisors are listed, they should at least have a deep and experienced team, and share that information prominently.

13. No Purpose for the Coin

Both scams and bad projects share this in common — there is no actual use for the coin they are launching. If a project doesn’t NEED a coin to operate, then they shouldn’t have one. Question the function of the coin and ask yourself, “is this really needed?” If the coin isn’t a necessity for what they are trying to do, neither is the company trying to get you to buy it.

14. Lack of A Prototype

I’ve competed in business plan competitions where I’ve had more of a prototype than some of the ICOs that are publicly raising money. While scaling a tech startup does take a lot of money, creating basic prototypes and MVP’s (minimum viable product) is usually inexpensive. If there is no evidence of a prototype and little information on when it will be released, the ICO you’re looking at is either poorly prepared, a scam, or extremely far away from being ready to go to market.

Thanks for reading. Please help spread the word of cryptocurrency scams so we can have a better informed cryptocurrency community — which is good for everyone.