The Initial Coin Offering (ICO) enabled anyone to participate in blockchain start-ups. In 2017, there were more than 200 ICOs. Moreover, during the third quarter of 2017, ICOs raised more than $1.3 billion. However, the relative novelty of the ICO technology, the lack of understandable terminology, and the surge of public interest made emergence of numerous fraud cases possible. See six red flags to look for in order to stay away from ICO scams.
1. Project does not require blockcain
Not every project requires usage of blockchain and decentralization. However, amid the widespread popularity of this technology, many companies in most industries turned to blockchain. Even projects that use virtual money as payment could be implemented using the existing cryptocurrencies.
Therefore, assessing an ICO, the first question that is necessary to ask: does the startup really need its own token and blockchain? If the answer is negative to both, it is possible that this project is a scam.
2. Empty repositories for open-source projects
If an ICO project is proposing open-source code, it should be uploaded to a repository like GitHub. Open-source software is easy to check as it is open for review and analysis. If there is no description of the technology in the ICO project, this may be a sign of fraudulent activities of the company.
For investors who are not familiar with programming, it is enough to check that the project has files in public repositories and a functioning prototype.
3. Mining structure protects the interests of developers
When developers are paid with the tokens they made, it is not always a sign of fraud. However, if there are more signs of suspicious ICO, it is better to refrain from participating in the project, especially when the percentage of tokens reserved for developers is high. Such a financial structure could be an indication that the creators do not intend to develop their project in the future but only plan to earn money by selling tokens.
4. Anonymous developers or team with weak experience
The most important thing in evaluating a blockchain start-up is to understand who leads the project since the project's potential and its ultimate success largely depends on the development team. The lack of specialists or work experience in the relevant sphere is an obvious reason for concern.
To check the information about developers, you can look for their profiles on Twitter or LinkedIn.
5. Insufficient information on website or whitepaper
Insufficient or scarce information on the website can be either a sign of fraudulent activity or mean that the project is still in its infancy. For example, additional information on Asia-based ICOs can be translated into English later.
Another important source of information about all ICOs is the whitepaper, the document that specifies the goal, development team members, technical details and other crucial data of the project. The lack of sufficient documentation can be regarded as a possible fraud sign.
6. Lack of clear roadmap
As a rule, all ICO projects have a plan of their goals and financing needs, which is called a roadmap. The lack of roadmap may indicate an absence of a clear long-term strategy for the development of the project. This can be a sign that developers are motivated only by short-term financial gains.
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