17 September 2021
The Cryptocurrency world is a lucrative investment approach. The more you invest, the more you want to involve yourself. But, unfortunately, it also doesn’t take too long to realise the risks involved in the new digital monetary mechanisms. And no, we're not even discussing market volatility. We’re talking about the underlying concern of the business world itself! Such as scams and fraudulent activities that happen in every industry, and, similarly, Cryptocurrency is no exception.
The investment environment is being fundamentally altered by Initial Coin Offerings (ICOs) and Crypto funding. New Cryptocurrencies launch almost every month, and these new coins or tokens are accompanied by a series of Initial Coin Offerings (ICOs). Even though Cryptocurrencies were pummelling in 2018, there is a growing desire among a broad pool of investors for these opportunities.
In recent years, ICOs have mostly been superseded by IEOs and other fundraising methods, but many projects continue to generate funds this way. ICOs act as honeypots for scammers of all kinds due to the high level of interest among investors and the lack of robust regulation. Foremost, if investors are prepared to put their money into a highly speculative market, they appear to be in an equally vulnerable position to put their money into fraudulent ICOs. As a result, scammers are drawn in by all of these elements.
The prospect can be daunting for a Cryptocurrency investor hoping to take advantage of the exciting investment options while staying protected from fraudulent ICOs and dubious coins and tokens. It's no wonder that some ICOs have been used to fund scams and defraud investors, given the exponential spike in the public interest, obscure terminology, and a lax regulatory framework.
While there's no certainty that any Cryptocurrency or Blockchain-related firm will be legitimate or successful. But it is crucial to take precautions at all measures, after all, it is your money at stake.
In this blog, we are going to review the biggest ICO scams and how to avoid them
An Initial Coin Offering (ICO) is a popular method for a company to raise funding to create a new coin, application, product, or service, usually related to the Blockchain and Cryptocurrency space. Interested investors can buy a new Cryptocurrency token created by the company in exchange for their investment. This token may be valuable in using the company's product or service, or it may simply represent a stake in the company or project.
ICOs are vulnerable to fraud and Cryptocurrency scams due to the lack of a legal framework and the general infancy of the underlying technology. According to a Coinfirm analysis published in March 2021, Crypto crime in 2020 amounted to more than $10 billion. Whereas scam ventures accounted for almost 70% of the total.
Also Read, What is an ICO?
In May 2021, CipherTrace reported that major Crypto thefts, hacks, and scams have already totalled $432 million this year. While DeFi-related hacks account for more than 60% of the overall volume. Investors are exposed to significant risks by investing in DeFi projects, ICOs based on Bitcoin, Ethereum, or any other Blockchain in the hopes of reaping large gains in the future.
Biggest ICO Scams
Centra Tech, a Miami-based Cryptocurrency company, named Mastercard, Visa, and Bancorp as partners. In addition, the company had forged a money-transfer licence. Despite these allegations, the firm was able to collect millions of dollars from its victims. The founders defrauded 15 million dollars at first, and eventually more than 60 million dollars. Robert Joseph Farkas, one of the company's co-founders, is now imprisoned.
Among ICO frauds, Pincoin and iFan continue to be the most popular crypto projects. Modern Tech, a Vietnamese Cryptocurrency company, raised 660 million USD by guaranteeing investors consistent returns on their tokens. The exit scam, one of the most common deceptive Blockchain fraud schemes, was used in this case.
While one of the most notorious lists of largest scam companies occurred between 2015 and 2018. The companies included Bitcard, Plexcoin, Opar and Ebitz, Confido, Bitconnect, Ponzicoin, and several others that swindled between 15 million and 200 thousand dollars from investors.
Impersonating celebrities is another prevalent means of deceiving the public. According to a study undertaken by the AI-focused agency Bolster, over 90% of all such scams were carried out under the names of Elon Musk, Bill Gates, John MacAfee, and Yusaku Maezawa.
Finally, the extensive list of instances can be summarised by Zdnet, one of the influential technology news portals. AT&T, Poloniex, Kucoin, Helix, GoDaddy, and many others are among the prominent brands that have experienced huge losses.
ICO Scam Techniques
- Exchange Scam - The project launches its Initial Coin Offering (ICO) on a sham exchange.
- Ponzi Scheme - The victims are asked to invest in a certain product(s) or service(s) affiliated with the ICO in exchange for promised returns at a future stage.
- Phishing Scam - This is a very common type of con. Scammers pick renowned projects and create websites with similar names in order to deceive inexperienced investors into losing their money.
- Exit Scam - The project is widely publicised on various social media platforms, channels, forums, and messengers, and then the development team vanishes with the monies raised from investors.
- Airdrop Scam - The basis of the technique is the theft of private keys from users who expect free tokens, resulting in them clicking on the links, exposing their personal information and losing the currencies from their wallets.
- Pump and Dump Scheme - Scammers inflate the price of counterfeit coins. This leads to investors rushing to buy the tokens at any price to avoid missing out (FOMO) on the opportunity to invest, but the price of the tokens drops sharply after the scammers have completed their sales.
How can you avoid ICO Scams?
While regulation remains ineffective, the only thing you can do as an investor is to rely upon vigilance. Research and staying updated play a key role in avoiding downhill.
You must keep an eye out for the following criteria, which are frequently overlooked warning flags of a scam project:
- Any project that does not reveal the names of its team members should be considered with caution. Thus, one of the best ways to protect yourself is to do extensive research on the project's individual team members before investing.
- Don't be misled by the project's grandiose advisor names. The majority of the time, they have no significant influence over the project or its execution.
- ICO scam campaigns often involve the creation of fictitious executives with credentials devising ties with well-known figures.
- Pore over the whitepaper as it is the project’s core document. The whitepaper can offer a lot of information, such as the project’s background, goals, strategy, implementation timeline, financial models, SWOT analysis, etc. Hence, you must thoroughly read the whitepaper and look for red flags like no whitepaper, insufficient information, inadequately or poorly written whitepaper.
- ICO ventures typically lay out their funding and development goals on a timeline for investors to view. The lack of a defined roadmap could imply that the project's development team has no long-term goals in mind, and is therefore likely driven by short-term financial benefit.
- A large number of tokens have already been mined. While the team members are given an excessive number of tokens.
- One of the other signs is to look out when a pyramid structure is used in the project.
- Thoroughly examine the ICO reviews from experts and reliable platforms.
- Before investing in a project, look for outside sources to verify its credibility. Hackers frequently leverage smart contract flaws, so it's a wise idea to have a smart contract audit run by a trusted company or third party to ensure that the web application is protected and the smart contract is designed without errors.
- Any ICO will operate on a token or currency system in order to facilitate the crowdfunding process. Legitimate businesses and undertakings make it simple for potential investors to view the information and the token sale's progress. Keep track of the ICO's token sale numbers throughout the time.
- Phishing sites pose a serious threat to cryptocurrency ICOs and potential investors. Users may find it difficult to distinguish between official and unofficial websites since they are clones of real projects.
- Never use an Ethereum wallet address sent to you by someone you don't know. Make use of the data on the official ICO website.
- You can also find an open-source Ethereum Scam Database that helps keep track of existing Ethereum-based frauds, so you can always check the resource to see if the project has been added to the ICO scam list.
If an investment sounds too good to be true, it’s crucial to stay even more cautious. Spend time scrutinizing every aspect, and consider that the lack of a critical piece of information could be an attempt to conceal an unsound model or concept. The cryptocurrency and ICO spaces offer tremendous opportunities for investors who have done their studies and can make informed investment decisions.
Disclaimer: The author’s views and opinions are for informational purposes only and do not constitute financial, investment, or other advice.