The who, what, when, and how of initial coin offering (ICO) scams. Just like any other industry, the cryptocurrency space is a magnet for scammers. ICOs are especially vulnerable to fraud because many are new and therefore don’t have long track records that potential investors can investigate.

The ICO scam goes something like this:

You hear about this new type of coin that is just entering the crypto market. Through social media or other online methods, you’re approached by someone online to invest in the new cryptocurrency platform. This person explains to you that they’re launching a new startup cryptocurrency platform and they’re looking for investors. They may even say they reached out to you specifically because they think you’d be a great addition to the investor team. While you might be, remember, there is no investor team. Over the course of some time, you’ll send cryptocurrency or wire funds to this person to fund this new platform. However, after a while, the person who collected the ICO will vanish, taking with them all of the funds that were supposed to be invested.

What are the red flags of an ICO scam?

A sketchy website.

If you’re thinking about investing in an ICO, a sketchy website should be a big red flag. A website for an ICO or other cryptocurrency project is the first impression many investors will have of the company. If it looks amateurish or unprofessional, that’s not a good sign to investors. Similarly, if a company has no website at all, that’s a red flag. It’s very easy to create a simple site with basic information and links to social media pages and the like to get started on an ICO—why would they not have done that? If there’s no website, ask yourself why.

Lack of a whitepaper or a poorly written one.

A lack of a whitepaper or a poorly written one is a sign of an ICO scam. A good ICO will have a well-written white paper that explains the problem they’re trying to solve, the solution their blockchain technology provides, and the potential applications for it. Be wary of any project that makes bold claims without giving evidence or explaining how they plan to achieve them or why they’re different from other projects that have promised similar things in the past.

No cap on the token supply.

This means that once the ICO has ended and the tokens have been distributed, anyone who received tokens will be able to create more of them, which will lead to more tokens being in circulation. There are many token models that do not have a cap on the supply and they are still valuable. However, if you are looking at an ICO that does not put a cap on the supply, this is one of the signs of an ICO scam.

The more tokens there are in circulation, the less valuable the token becomes.

Unsophisticated technology.

Unsophisticated technology is a sign of an ICO scam. If a company’s technology seems far-fetched or doesn’t appear to be well thought out, it could be a sign of a scam. If, for example, the company claims that they will disrupt email with their new blockchain technology while they still require that you use email to participate in their token sale, then it might be a good idea to look elsewhere.

Overly ambitious promises.

One of the biggest red flags of an ICO scam is overly ambitious promises. There’s no doubt that ICOs have made some people rich, but if a company makes very ambitious claims about how much money they’re going to make or how many things they’re going to change and how quickly, then it’s a good idea to be suspicious. In addition, if you see a cryptocurrency that has only been around for a few months and yet it’s valued at thousands of dollars per coin, then you should know that there is something fishy going on.

In addition, if the company making the ICO doesn’t have an established track record for doing what they plan on doing or isn’t based in a country where blockchain technology is regulated, then you should be wary of their ICO.

There are countless ICOs out there, and it can be hard to tell which ones are scams and which ones aren’t. If a project is promising something new and exciting but asks for money right away, that should probably set off some alarms. These are red flags telling you to stay away from the ICO. A limited whitepaper and a team you can’t find anything about on Google may also signal bad things to come. Also remember that, if an ICO is trying to get you to invest your money in cryptocurrency instead of their own token, then it’s likely a scam.

Have you been the victim of an online scam or ICO scam? Active Intel provides two tiers of online scam investigations to help gather evidence and track down the scammer.

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