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How to Detect Scam ICOs and not to Lose Money

August 17, 2018 7:41 am
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Curmudgeon

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at Cryptonomos

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Every day Cryptonomos platform receives up to seven applications from startups that want to hold their ICO on our marketplace.

But we choose only one project every few weeks: we help to raise money only trusted projects with a good product. And we also do our best to help our clients to avoid losing their money.

We understand that the ICO market is still unregulated. We are all in the same boat, token buyers, ICO initiators and marketplaces that help to hold ICOs. We all want to have equal playing field with definite rules and guarantees against fraud. However, the ICO market is still far away from being transparent for investors, and scam projects are far from being rare on it.

Around $600 million has been raised through fraudulent schemes, the US Security and Exchange Commission (SEC) estimates. Soon we might hear even bigger numbers: in May the US and Canada launched a coordinated operation to investigate suspicious cryptocurrency investment schemes. 70 investigations are already underway, media say, and more are to come. This widespread crackdown is called Operation Crypto Sweep. And a few days ago Bloomberg reported that the Federal Bureau of Investigation has 130 cases tied to cryptocurrencies. 

That is why we decided to share with you some rules that help not to become victim of fraud. Here is a list of red flags that often help to detect scam ICOs. Following these recommendations you will be able protect your money from fraudsters and concentrate on opportunities to earn some money.

  1. We hope it should not come as a surprise, but chances of losing money in a scam ICO decrease dramatically, if one buys tokens not on one’s own, but through a trusted market places with KYC (Know Your Customer) procedure. Cryptonomos is one of such platforms, but not the only one.
  2. However, if you are brave enough to buy tokens on your own, beware that if an ICO project promises returns, especially high returns, it’s a sure sign that the project is scam. Nobody but the God of the Market can say, if the ICO segment will be growing or not. Most of projects that promise high returns are nothing, but Ponzi schemes.
  3. Check the documents. The Wall Street Journal recently conducted a review of 1,450 coin offering documents and found that hundreds of technology firms were using deceptive and even fraudulent tactics, including plagiarized investor documents. Always ask for the White Paper and Terms of the Token Sale at least and check them for plagiarism.
  4. Do not trust ICO projects endorsed by too many, or unlikely, celebrities. Beware that some fraudulent projects use fake biographies of executives and advisers. Some scam ICO sites have even used the unauthorised images of celebrities such as Prince Charles and Jennifer Aniston to sell their tokens. On the other hand, if executives and co-founders of the project prefer to remain anonymous, it is just as bad. They are not the Count of Monte Cristo, ICO projects should be transparent.
  5. Do not be lured into buying tokens, if the company that is holding the ICO is boasting partnership with many prominent corporations. Recently, the SEC charged Sohrab Sharma and Robert Farkas – co-founders of Centra Tech. Inc. – with carrying out a fraudulent ICO. Centra offered CTR tokens to investors, which co-founders claimed were backed by Visa and Mastercard and would allow people to convert cryptocurrency to U.S. dollars in order to spend it in stores. In fact, Centra had no relationship with either company.
  6. Do not trust projects that do not have a product that will find demand on the market. Or even worse, projects that do not have a product at all. Have you heard of the Useless Ethereum Token (UET)? It was created as a joke, do not forget that some crypto-enthusiasts have a very specific sense of humor.
  7. Study the roadmap of the project. If it is confusing, or sets too optimistic goals, better stay aside.
  8. No media coverage, or very generous media coverage is a bad sign. Visit the projects that conducted their ICOs on the Cryptonomos platform. At the bottom of their page you will always see what publications wrote about them. All credible ICO projects have sensible media budgets and do appear in many publications.
  9. The credible ICO project always has an official website, and all its content is translated into several languages, including, for example, Russian and Asian languages (once again, come and see how Cryptonomos does it). The project should also be present in the social media. The content is usually doubled: by the startup itself and by the marketplace that helps it to raise money.
We hope that the list is complete. But we promise to update it if some new information emerges about potential threat to token buyers.

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