ICO - Initial Coin Offering, what is hidden behind the magic of these “overseas” words that have been on everyone’s lips for quite some time? And why is the demand for investing in Blockchain startups not falling, if 90 percent of them are just a beautiful wrapper for fraudulent schemes to steal investor funds.
ICO is a kind of way to attract investments by selling investors a fixed number of tokens confirming their right to own and dispose of shares (according to the nominal value) of some innovative product - a good or service. Moreover, the sales process can be instantaneous as a result of a one-time issue or lasting as a result of the accelerated issue of such tokens.
The term ICO appeared due to the analogy with IPO, but although these terms are similar in sound, they are different in essence. We wrote about this previously.
According to experts, compared to 2016, the number of ICOs in 2017 doubled, and began to take place 2.75 times a week, whereas previously this number was no more than 1.5 times a week. At the same time, the volume of attracted investments has increased significantly. If earlier the amounts of investment funds ranged from several hundred thousand to several million dollars, then in modern times there are examples with the involvement of hundreds of millions of dollars.
Of course, such a feverish excitement in the crypto-sphere, coupled with the ignorance of the absolute majority investors, could not help but take advantage of swindlers of all stripes. The result is continuous disappointment among people and a constant increase in distrust in Bitcoin and the blockhain industry as a whole.
What should you pay attention to first of all before taking on faith this or that “product of human creativity”, even if it is the most sophisticated Blockhain startup with the promise of fabulous profits in the very near future.
A few rules for investment security
The first rule of any investment is a cold mind, one might say widespread and boundless skepticism, as well as a willingness to spend a certain amount of personal time on “reconnaissance.” Or in other words - for the primary analysis of the information that lies on the surface, and without fail for the study of facts hidden from view.
Also, the “second first” (so to speak) rule of investing is a categorical taboo on investing borrowed funds, as well as a clear awareness of the specific amount with which you are ready to painlessly part with.. After all, any entrepreneurial activity, and especially investing in a future or existing business, are extremely risky.
Before starting your journey along the “uncharted roads” of ICO, it would also be useful to scour the Internet about successfully implemented crowdfunding projects in general. Then figure out how many of the ones you found were based on Blockchain, and how many of them actually took part in the ICO. What were the amounts of attracted investments and what people became the “face” of such projects, as well as what the investor ultimately received in exchange for their hard-earned money given to the development of such startups.
The complexity of Blockchain technology, the operating principles of Bitcoin and any other cryptocurrencies play a huge role in deceiving gullible investors. Actually, scammers do not need to use terms that are difficult to understand, or draw diagrams, describing in detail the algorithms for the operation of their product. Their goal is not to scare away potential clients, but, on the contrary, to show them an easy way to make quick money. The anonymity of transactions and the imperfection of the current legislation also simplify the work of the creators of the next “currency of the future” and all sorts of “revolutionary know-how.”
In the investment field, in relation to fraudulent projects, the term “SCAM” is popular, which translated from English means “scam, fraud.” No matter how banal the set of fraudulent tools may be (remember the notorious “400 ways” by Ostap Bender?), a fake ICO will always be well disguised as a genuine business, and at first glance this is not easy to understand.
Nevertheless, here are the most striking distinctive features of most scam projects of our time:
1. The “drawnness” of the majority of project team members
In most fraudulent projects, starting from the founders or directors of the company, and ending with ordinary personnel, there are guaranteed to be dummies or specially hired “drops”, the purpose of which is to preserve the anonymity of their creators. It is the presence of lively and dynamic Internet activity of team members that is the most important sign of the authenticity of any project.. It is very good when the team consists of famous personalities who have previously participated in some high-profile projects. Since the personality, work experience, education, as well as the participation of favorites in other projects can then be relatively easily discovered. But this does not always happen, and some real professionals in their field simply do not like publicity, so the personalities of developers and managers remain in the shadows, or their personal data says absolutely nothing about their qualifications and abilities for the development of the project. Thus, when studying the project team, try to find out if there is any information about the team members other than what is stated on the official website, when did the first publications about them appear and what exactly was discussed? Where else exactly was their author public (forums, blogs, specialized sites, etc.), what is the actual location of the team and the project in relation to the geography of the project, is there an online connection with each of the team members. In the case of scam projects, there will be more than enough inconsistencies.
2. Inability to confirm from official sources facts, events and persons that are significant for the project’s rating
The blockchain industry has its own social circle, its own opinion leaders, as well as special public platforms for communication with each other. These can be blogs and media that track all new trends on the Internet related to blockchain technology and which have a good reputation. When it comes to any cryptocurrencies, the best source of information about them is cryptocurrency exchanges such as BitFinex, Poloniex or Kraken. Exchange rates, history and trading volume can often tell much more than a few pages of text. Thoughtful information searching is one of the most important skills of our time. Of course, the creators of scam projects are interested in self-promotion and creating fake positive reviews. In any case, your main protection against irrevocable investments is logic, the ability to count and search for information on the Internet. Then, when analyzing data announced in the media in relation to a specific ICO, pay attention to whether information about the company is confirmed (for example, on the official websites of national state registrars), data about the site (who service..is or analogues), about important events (transactions, participation in associations, etc.). If, when searching on the Internet for the legal address of a project, you find the address of a cafe or restaurant, then it is not recommended to invest your money there. Any contact numbers and office addresses must be current. For example, the office is located at 10 Avenue str., and in the documents - 101 Avenue str. The issue of relevance and reality also concerns documents: licenses, certificates, etc. Double-check them by company name and registration. number on the websites of the issuing authorities, or for the presence of traces of photomontage.
3. Lack of ideology and charisma in the project
First, pay attention to the external design of the project website. Attention to detail is of utmost importance. An ICO is, first of all, a competent presentation of a product that needs to interest an investor. And if, when you see the site of a new project, you want to close your browser in fear, then the likelihood of its success is negligible. Think about whether the logo has been stolen, whether licensed or stolen photo and video materials are used, and so on. The main idea of the project should be reflected in detail in a document called White Paper, and also described in its marketing campaign. You must answer the question “What exactly will this project give me?” If the answer sounds like “45% of the monthly contribution” or “15% of the referral reward,” then you don’t have to read further. A project that prioritizes raising funds as quickly as possible and the whole idea of which is based on the redistribution of such investments is most likely built on the Ponzi principle.
4.Bring a “referral” and “you will be happy”
Perhaps how MLM schemes, or network marketing, work has long been no secret to anyone. A characteristic feature here is the so-called multi-level referral system of rewards to participants for attracting new investors. Such projects use terms such as Blockchain, Token and cryptocurrency just as a beautiful wrapper for business nonsense, which in fact is empty inside without specifics and a technical component. And the presence of certain numbers in the client’s personal account remains a simple picture without the implementation of any mathematical algorithms and schemes.. Think about what self-respecting HiTech project will base its promotion only on local offline events in the form of lectures and seminars, in order to attract funds from participants in such events.
5.Using as a “legend” projects the most popular trends in the Internet community or “great hopes”
A promoted trend, for example, such as “cloud mining” (earning money from rentals from owners mining pool of certain virtual computing power used in the process of mining cryptocurrencies), is perceived by the majority of people as a time-tested way of earning money, and therefore does not require critical perception. But in vain. This is the main trick, a ploy used by almost all scammers to attract their audience. The expectation is that an ordinary person will believe it anyway and will not dig deeper. Because if he is offered something new, this new thing will raise doubts and a natural desire to understand the principles of making money. In addition, the fabulous interest rates (from 20 or more per month) in such projects should immediately make you think (after all, the norm is from 5 to 7 percent per month) and be a signal not to invest a penny.
6. The “manufacturability” of the project
“White” ICOs must be accompanied by a detailed description of the technical aspects of the implementation of the idea. Ask yourself: how much better is the project’s architecture than its closest competitors and what is their fundamental difference? What stage are competitors at and are there any analogues of non-bockhain solutions? Based on the data obtained, try to find an answer to the questions of whether the implementation of such a plan is realistic and how much better this startup is than existing projects of a similar group. What is the opinion of experts about this project? How competently will it be implemented from a technical point of view? What does the code look like and who wrote it? Of course, you may not be an expert in smart contract analysis, but you can find some answers. For example, are there open sources on GitHub or another resource? - a positive sign is open source code and software distributed under the GNU/GPL license.. This means that anyone with the appropriate skills can audit the project's code, and in some cases, suggest improvements to it.
7. Value of tokens
Any ICO must have its own scale of values for token holders. The issued token should not only be sold at a higher price, but also have a compelling justification for its further development within the project. You should definitely read all the materials and study this particular point in detail. You need to look for any information about how the company will make money in order to make a profit and pay off investors. How many tokens, at what price, with what discount, at what time and why are they issued? Often scam projects make calculations quickly, hiding obvious absurdities.
Having answered a number of these questions, you can easily understand whether such a project has a core, why it hooked you, and how realistic or fantastic the plan of its creators seems. Ultimately, remember that according to statistics more than 80% of ICOs are fraudulent, and do not rush into the decision to invest in a particular startup. As they say, a bird in the hand is better than a pie in the sky.
Read also: ICO: INVESTMENT OR UNJUSTIFIED RISK?
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