4 Easy Signs To Tell If An ICO Is A Scam

by Andrew McGuinness     Jul 16, 2019

Anyone with a Trading 101 background that has been paying attention to the financial news and fintech space since the bitcoin boom has most likely encountered the concept of ICOs a few times since then. ICO, or Initial Coin Offering, has been the latest and greatest in the fintech community when it comes to raising early stage capital for blockchain startups and similar ventures. In fact, over $3 billion have been raised using ICOs since 2017, so it’s nothing to scoff at.

One of the big problems with ICO in comparison to something like an IPO is the fact that they’re unregulated. Cryptocurrency as a whole has been largely unregulated and hasn’t been affected all too much by regulation outside of recent tax bills in the USA, making ICOs more susceptible to being a scam, especially at the rate they’re being organized by companies. This is important crypto trading 101 knowledge, so take note.

Let’s look at the 4 most important things to check to ensure that an ICO you’re looking to invest in is in fact not a scam.

1) Who’s running the operation?

This is an important question to answer – who exactly is running the company offering the ICO and why? Reputable companies with good entrepreneurs behind them will have no issues with publicizing their identities, backgrounds and experiences, as well as their goals for the company. Your mind should be raising red flags as soon as the identities behind an company holding an ICO are unclear – you should definitely be aware of who the founding team is, who major investors are and what other people the company is connected to.

If you don’t have access to this information from the company itself, you’ll be better off looking for a safer investment.

2) What’s the community like?

One of the ways that bitcoin became such a sensational success is its overly active community. A blockchain can only exist with an active community that maintains the blockchain through its activity. Investigating whether the company holding an ICO is respected within the community and whether they’re an established part of it is crucial. Any company (or company founder) that has a bad standing with the crypto community should be treated with extreme caution.

A lot of companies that hosted successful ICOs are active in the community because they care about their community’s opinions in decision making as well as in determining the right direction for their company. These communities are a great channel for you to clarify questions you might have about the ICO or the company itself.

3) Validation

A very valuable piece of information on whether an ICO is a scam or not is to check if the company has success stories, reviews, press releases and other public interactions. It’s easy to find reviews of companies online as happy and upset customers alike tend to make their opinions known online. An ICO from a company that has no publicity, whether in the form of press releases or testimonials, is a red flag.

Of course, such a company can also be at a stage where it’s too early to have such pieces of validation, meaning you need to be doubly sure whether it’s worth investing something that’s in that early of a developmental stage.

4) Technical details

Understanding exactly the specifications of the coins being sold at an IPO is critical. All good IPOs will have a public whitepaper which details the technical specifications of their product as well as their roadmap for their product’s success – this is true regardless of what stage the company is at.

You need to apply some business acumen on these roadmaps and technical details and check whether they’re all feasible or not – plenty of ICO companies are claiming things that are undeveloped, untested and most of all, unrealistic.

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