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How to invest in ICOs - All you need to know

How to spot and avoid an ICO scam

How to spot and avoid an ICO scam

Nowadays, there are a lot of so called shitcoins being released that are worthless over time and /or turns out to be a scam.

Nowadays, there are a lot of so called shitcoins being released that are worthless over time and /or turns out to be a scam. This article sheds light on the criteria investors can use to evaluate their investment decision to be able to quantify the risk an ICO being a scam or a worthless project. Remember that this is not intented to recommend buying or selling any instruments; it is for educational purposes and based on subjective opinions and observations.

  1. A landing page is 80% about the token This is very often a strong sign of a weak project. The landing page will be about the token economics, token sale dates, how they are going to allocate the tokens, when they are going to allocate them and also having a little section about what the token does. These kinds of projects should be rather avoided because they don't have a functional project and they don't even know what they are trying to do. A good example of an ideal landing page would talk about the company ethos, what they are trying to do, how their tech works, and a bit about the company dynamics, partnerships and business cases.

  2. Control-F Test The Control-F (for the keyboard shortcut to bring up the Find window) test is simply searching for the word KYC on the homepage or somewhere on the token sales page. This is very important. From 2018 to 2019, we are going to see a lot of regulators and laws coming to place that treats ICOs and token sales like offering securities or financial instruments. The current SEC definition of securities is very vague and they may treat token as securities. A lot of ICOs fall into that sort of framework already, so if they are not going through a proper KYC process, the ICOs may suffer various consequences. It is advisable to basically have a pretty far distance from these companies. If the company doesn’t have a lot of KYC information, avoid them.

  3. Looking at the company’s whitepaper An important way to spot scam ICOs or identify not viable projects is looking at the company’s whitepaper and checking how much legal disclaimer information they have on the whitepaper. This might sound strange but it is an indicator the company is trying to build something for the future. They have to realize that regulation is going to be part of the future and will want to be 100% compliant with laws.

  4. Massive bonuses Stay away from token offerings which involve massive bonuses. They indicate two things: The token sale is usually desperate for money thereby trying to throw out their tokens to attract investors. People involved with the project are probably just going to dump tokens the second it hits exchanges or even before.

  5. Fall of meaningless blockchain aphorisms Avoid companies using aphorisms detached from reality; some sort of specious or meaningless ‘will change the world’ is a red flag. Blockchain technology does represent a revolutionary shift in how the Internet and interconnectivity works. However, some centralized protocols or businesses are not right for blockchain disruption and might not be even right for blockchain destruction in the future. Some services work better in a centralized manner. Although blockchain promises to bring lots of benefits to the world, it should be noted that some of them might not come to fruition and some might not even be feasible. Hence, avoid any companies that are trying to change something as fundamental as how the internet works or how a very entrenched business or industry functions.

  6. It has no business being on the blockchain The easiest ways to determine if the project is a scam is to ask yourself in a really honest and a very transparent way; does this technology require Distributed Ledger Technology (DLT) or does it requires to be on the blockchain? If it doesn't, then it basically may be a ploy for money or wishful thinking, and there is no reason it should be on the blockchain. That doesn't mean you can't make money with these ICOs but in terms of long-term, you need to be really skeptical.

  7. We do everything USP (Unique Selling Proposition) USP is a very well defined part of the company’s mission statement saying how will it differentiate from the competitors and what really will their product or service be. Some ICOs are sort of porting to do everything i.e. we are a marketplace, we are escrow agency, we allow payment, we have a wallet and you can do crowdsourcing on it. They won’t focus on a particular objective to create value. Avoid them if they don’t have a narrowly focused USP.

  8. No MVP no problem. We’ll take $40M please The world of startups funded with Venture Capital has developed a term Minimum Viable Product, or MVP, indicating a prototype that is enough to be offered to a group of customers for money. Usually MVP provides for a feasibility test whether the market would accept the project and at what price point. Of course with ICOs we are often talking just about ideas and technologies in the making, so MVP as such is very rarely spotted, but you can sense whether the project is walking in the right direction or just lost in the wilderness. You need however to look beyond the nice web page and a bunch of Ivy League kids on it. They will be asking for $40,000,000 because they have an idea and they want to get the funding for it. But with no proven use case, no data on how they will monetize it and how high the profit margins will be, asking for that amount of money is ludicrous.

  9. Having an insane amount of YouTube Promoters There is an increasing number of YouTubers promoting scam ICOs, perhaps for profit. You can know them often just by looking at their videos. Scroll down at the comment section; you will see that they are basically just promoting everything, while the videos lack merit and reason. They will not talk about the whitepaper or how critical is the project. Instead they will just be giving a shallow surface level argument of why the ICO is going to do well, trying to play on emotions. Sometimes they will also be tempting viewers with money.

  10. Look at the project’s partnerships Scam ICO projects often show well-known brands as alleged partners, while they are most often just service providers. Just because someone is paying $29 a month for Amazon Web Services that does not mean that Amazon is now partnered to their ICO website. A lot of ICOs do this, claiming wrongfully for instance; we are part of ASP, Microsoft and many more. The truth is that anyone can join a free accelerator program, but it is not a partnership.

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Finally a good post covering this topic. So many ICOs are scam. Investors should be extremely cautious while investing in such products. I'd recommend very deep analysis, checking LinkedIn and everything what's possible.