How to detect a fraudulent ICO

The cryptocurrencies and above all the blockchain technology, have allowed the development of a new variety of projects focused on multiple areas. Most of them generally seek financing from community investors to help carry out the idea.

In recent years and especially in the past 2017, huge collections were made through ICOs, which made possible some of these great proposals. This generated a fever of investments in startups that posed striking innovations and favorable profitability, but as an addition to that, a thirst also arose for making quick money through this process.

As a result of this, ICO offers began to emerge that ended up being well concealed scams, using marketing strategies to execute the deception and even, the promotion by some celebrities that allowed them to reach a wider audience. A fact, that I alert to the members of the community to be more cautious as for the projects in which they decided to invest.

Due to the frequent scams that took place through ICO, a wave of legal actions and multiple regulations were carried out in different countries such as the United States, China, South Korea, Singapore, Russia, Canada among others, including, in addition, recent advertising bans on Internet giants like Google and Facebook.

A brief review of the ICO

The Initial Coin Offering has become the preferred financing model for new startups that want to carry out an innovative project in the world of cryptocurrencies.

The process is executed through intelligent contracts that automate the process and which in turn reduce the costs that a traditional financing process such as the Initial Public Offers would have, by not having unnecessary participation of third parties.

This process, apart from allowing direct investment in the new concept, represents the initial opportunity that the user has to acquire the cryptocurrencies offered before they enter the market as such and above all at a much lower price.

Similarly, in your White Paper or in the roadmap, the organization will establish the amount of funds necessary to achieve its objectives, as well as the predetermined amount of cryptocurrencies that will be offered in the initial sale to achieve this.

One of the advantages that the investor can use in some ICOs is that in addition to accepting cryptocurrencies as a form of payment, fiduciary currencies such as the Dollar or the Euro can also be used to make the investment.

Techniques to detect fraudulent ICO

With the increasing popularity that they have had in the market of cryptocurrencies and the high number of announcements about new ICOs that have emerged, it is important to take into account some aspects that help to determine if the process is really legitimate and of value or on the contrary is a well articulated scam.

In this case it is necessary to set some techniques or key points to review to establish the degree of confidence that can be granted to the ICOs or to detect immediately if it is a scam. Among the issues that we must take into account we have:

The team behind the project

Knowing exactly who is behind the project, is something essential before venturing to make an investment in a new concept. A thorough search on the internet about the founders, the developers and the users that support it, as well as the academic and professional experience in each one of them, will present a clearer vision of the direction and commitment that they will maintain with the idea and investors.

White Paper and Technical Documents

The White Paper is of vital importance to determine if an ICO is fraudulent or not, so it is one of the first searches that must be done on the official website to identify how structured the project is. A good analysis of the competition, a defined financial model, wallet design, roadmap, SWOT analysis and institutional studies are some of the issues that should be present in a quality White Paper.

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Purpose of the project
Regarding the purpose of the project and the benefits it will bring, it is something that must be known in order to establish how viable and useful the project can be. Obviously any impractical or fanciful purpose makes it clear that it is a clear scam.

Collection objectives of the ICO

Each organization in an Initial Offer of Coins, must have a clear collection objective, which will give the necessary financial support to lift the development of the concept devised. Any other promotion that does not make clear these financing limits amounts and the time to reach it, possibly represents an investment risk and a scam warning.

Administration of the collected resources

Apart from the amounts established for collection, each company or organization must make clear how the administration of these resources will be, clearly defining how much resources will go to the developers or founders, to the reserves and how they will be used.

Possible risks in the development

Each project has its risks in greater or lesser scale, so when receiving an offer of participation in an ICO we must be aware of each of them. Otherwise, any organization that ensures a high return on investment or the growth of the project together with that of others in the ecosystem, would surely be a pyramid scheme.

Project partnerships

For a better confidence in the organization, we must be aware of the alliances that have established with exchange houses or are about to materialize in the future. The tokens that are acquired during the ICO must be exchanged for other cryptocurrencies or for Fiat money easily, otherwise it would be considered stagnant investment and at risk of being lost completely. In such a way that this condition will give us an idea of ​​how reliable the ICO can be.

Progress tracking

To be aware of this, the organization must provide a schedule of actions and development, goals with dates set to be met and similarly tests to be made of the progress made from time to time. The publicity and the openness of the developers with the community will help keep track of the progress they are making.

All these aspects can help determine if an ICO proposal is intended to implement an authentic project or if on the other hand it is a scam that seeks to get the money from investors and the community in general.

How to evaluate an ICO

Apart from detailing the previous aspects, in order to ensure the legitimacy in terms of the organization, as well as the concept or idea to be developed in any project launched through an ICO. It is also important to evaluate how beneficial it would be for investors to participate in the project, in order to obtain a profitability consistent with the contribution we make and with the evolution that it may have in the future if it is managed under the long-term scheme.

For this, we must also take into account some variables related to the previous points, but also, also with other aspects that are perfectly detailed in this article on the keys to evaluate investments in ICOs.

Conclusions

The Initial Cryptocurrency Offers have become a striking investment instrument for the cryptocurrency ecosystem. The community has taken advantage of the advantages of being able to participate in striking and innovative ideas, obtaining in the same way benefits and dividends in these procedures.

However, as is already known, misleading offers are still present in any area of ​​this market, which makes it essential to know how to handle the elements that surround it to identify any fraud in the face of doubts.

Although the number of events has decreased due to the regulations, the constant realization of ICOs has not come to an end and as attractive as they may be to invest, it is better to be prepared both to evaluate your proposal, and for a possible participation.

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