If you have been trading in cryptocurrency arena in recent years, no doubt you have come across ICO. For those of you who are not aware, an ICO is the initial money offer made by new cryptocurrency projects. Typically, these offers are made through crowdfunding as a means of attracting investments to kick-start the currency effectively and offer traders and investors the opportunity to collect potentially valuable tokens at a discounted rate.
Tokens are sold on the basis of a successful launch with investors who can cash out if the project succeeds by selling their tokens in the future. So far so good, ICOs are providing a solid basis for investment with the opportunity to get generous returns when the platform is active.
The problem is that ICOs are often scams. In fact, it has been estimated by Statis of the ICO advisory group that 80% of all ICOs sold on the market were actually scams created by fraudulent individuals who were trying to make a lot of money and disappear as quickly as they had emerged.
This means, however, that 20% of all ICOs are legitimate and profitable, but with 4 out of 5 that are definitive scams, how can one distinguish between good and bad? And how can you make sure that your investment is with an ICO that could profitably profit in the future?
5 ways to identify an ICO scam
To begin with, it is important to stress that there is no foolproof way to determine if an ICO is a scam or not. In an ideal world, scammers would be easily identifiable, but problems arise because of the sophistication used by scammers to get investments. There are, however, 5 good indicators that show whether or not an ICO is a scam, and if these raise warning signals, it is probably best to find one that does not.
Suggestion n. 1 – Understanding the development team
This is critical and should be your first concern when considering if an ICO is a scam. The development teams of these projects often have good track records that are independently verified through third-party sources. This is mainly due to the fact that it is very rare for a basic ICO project without development history or credentials to be legitimate.
Familiarize yourself with the team behind the ICO, "google" their headquarters, check their educational and commercial history on LinkedIn. If a development team or people behind the project have already contributed productively to the cryptic world, then it could be a fundamental indication of their legitimacy.
Suggestion n. 2 – Take grips with the white paper
A ICO Whitepaper it is very similar to a business plan. It should identify the key areas that ICO is trying to address, how it intends to achieve its goals and, more importantly, it should outline the concerns that developers have. This last point is something that scammers often overlook because they do not want to perpetuate any negative connotations associated with their offer. This is because they want as many people on board as possible.
A legitimate whitepaper will highlight the areas that developers are wary of and the ways in which they intend to fight them. It will show careful planning and contingencies implemented since the beginning.
If the whitepaper looks too good to be true, it probably is!
Suggestion n. 3: examine the token
The offer for an ICO will be made through a token or a tangible currency system. If an ICO has been set up honestly, it will be relatively simple for investors to view the system and the performance of tokens. This information should be accessible so that you can discern how a token was run over time and to display the current performance.
To marry this information up to the statements and projections in the whitepaper, is it possible that the token can get results in the way the developers claim they can do it?
If you can not keep track of the token's performance, it's a clear indicator that something is not right for the ICO and you should move on to the next one.
Suggestion n. 4: take everything with a pinch of salt
Going back with the feasibility mentioned in the previous point, one must always be cautious in assessing the company's claims. If an ICO seems very interesting, but after evaluating its performance you have been discouraged by marginal or poor performance, it is better to avoid expecting a trend reversal.
Cryptocurrency, in general, is full of exaggerated statements and hype, only legitimate platforms retain value regardless of this. So it is very important that you trust your instincts when you decide if a particular project is for you. If something does not seem right or does not sound true, do not look for excuses as to why it might be and move on.
Suggestion n. 5: spread your risk
Even the most experienced Investors have fallen for ICO scams. This is because they often appear very real. It is worth mentioning that you should never put all your capital in an ICO, but rather look at other offers and balance investments to find a dynamic that not only works for you but protects you if one is a scam.
If you have been surprised by a scam, think carefully about the process you used when you selected that ICO, determine where you were wrong or what can be done differently. If you can not do it, it is perhaps best to avoid the ICO market and look for other fantastic opportunities in the cryptic world.
Some ICOs have been incredibly successful, but the ICO market is currently littered with poor ICO options that are purely there to rob you. Always be curious, ask questions and make sure you feel comfortable before investing.