10 Red Flags of an ICO Scam

1. Anonymous Team or Team with Weak Experience

  • Red flag if the team behind an ICO does not have any named full-time developers
  • Additional caution should be taken if none of the leadership team has any domain knowledge
  • ICOs often list their advisors on their websites. You should also verify whether the advisors are legitimate

2. Mining Structure Favors Development Team

  • Look to find how much of the total tokens were premined
  • Premining is the act of mining or the creation of a quantity of blockchain-based tokens or “coins” before a cryptocurrency is launched to the public
  • A pre-mined coin is essentially a coin that was created and owned by the developer before the coin is released to the public
  • High premined coins are highly correlated to pump and dump schemes where the development team pumps up the price to later dump all the coins and leave the project

3. Unclear or Unrealistic Roadmap

  • 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
  • If there are no roadmaps or unrealistic goals planned, this is another red flag
  • The lack of a clear roadmap could indicate that the developing team has no long-term plan for the project, and as such is likely to be motivated solely by short-term financial gain

4. Promise of No Risk

  • ICO and cryptocurrency is already highly speculative in nature
  • No investment is risk-free, and any project claiming to be a cryptocurrency has risk

5. Guaranteed Returns

  • Scams hook you with lofty returns that make you overlook common sense
  • No company can guarantee returns on an investment in their coin or stock

6. Extreme Price Goals

  • 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

7. No Purpose for the Coin

  • If the project has no purpose, the coin in nature is worthless
  • Both scams and bad projects share this in common — there is no actual use for the coin they are launching

8. Is Blockchain Required?

  • Can the project that the team is working on only be realised with blockchain? Or could the project easily be done without employing the technology
  • Make sure the project’s whitepaper clearly lays out why this specific project needs a blockchain and the actual part the blockchain plays in the development of whatever its future product is

9. Lack of Whitepaper or Project Documentation

  • A cryptocurrency or ICO whitepaper is the foundational document for that project
  • The whitepaper should lay out the background, goals, strategy, concerns, and timeline for implementation for any blockchain-related project.
  • Think of it like a business plan. Would you invest into a start up without a proper business plan?

10. No Clear Niche Focus

  • Startups, including ICOs, that are trying to be everything to everyone will almost always fail
  • As a startup or an ICO, starting as a niche is important because with less features and products, there’s less points of failure
  • Also, if you can’t understand the focus or you can’t explain the objective of the ICO back to a 5-year old, it’s best to stay away

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Hi! I'm

Ricky Young

My belief is that financial freedom cannot be obtained by just a 9-to-5, but a combination of smart investing and passive income. This is my journey to achieve financial freedom.

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