How to Identify an Initial Coin Offering (ICO) Scam

Posted by:
fghfgh, fhfgh false
May 21, 2018
ICO How to Identify a Scam

In 2017, ICOs raised more than $3 billion. Some of the most successful ICOs in 2017 include Filecoin raising $257 million, Tezos with more than $232 million, and EOS Stage 1 with $185 million. As more people and money flow into the ICO scene, a lot of scammers want a piece of the action too.

It is always important to look for red flags that can provide a clue if an ICO is worth investing in or is a scam. Performing proper due diligence helps helps protect investors from ICO scams and opens the way for separating the good ICOs from the bad. The following are some red flags that you should consider when assessing ICOs:


Weak Whitepaper

If the ICO whitepaper doesn’t have complete information on its company, ecosystem, coin, token sale, roadmap, technology, product, purpose, and other details, be wary. An ICO whitepaper should be clear and transparent with properly defined goals, and description of how those goals are attained.

In addition, it’s ideal that the website or whitepaper contains research on its financial models, wallet design, team composition, advisors, competitive analysis, basically the whole process that makes the team, company and token profitable.


Suspicious Timeline

A company has to have a well laid-out roadmap that details its projected progress.
A good timeline would be something that shows proper progress while not being overly ambitious because some ICOs promise worldwide reach or disruption of a particular market where it really isn't possible to do in the timespan presented in the roadmap.


Lack of a credible or authentic ICO team.

If a company doesn’t present its complete team to its investors, it shouldn’t have any business doing an Initial Coin Offering. It is highly recommended that the ICO team members have valid LinkedIn or other social media accounts that would list his or her credentials and expertise. An anonymous team is a strong indicator that an ICO might be dubious.

Some exceptions to the rule are Asian or Russian ICOs where Linkedin or Facebook usage is low. For these ICOs, verification of the authenticity of the team can be a little harder and might require more research into the various social media networks used in each country.

Any decent ICO will take steps to address a perceived weakness in the credibility of an ICO team. One very effective step that an ICO can take is to have a video interview with the team to show that they are really who they are.

Most ICO’s teams can also arrange to be interviewed on various crypto influencer channels where tough questions are often asked and the public can gauge the knowledge of the team based on their answers to questions presented.


Lack of capability of an ICO team.

Part of identifying whether an ICO is a scam or not is assessing the capability of the team to undertake the project.The ICO team members past performance in previous companies/businesses etc. can serve as a good indicator to assess the skill level of a team. Though it is said that past success does not equal future performance, this is always a good metric to look into.


Lacks Social Media Presence or Activity

Most successful ICOs continuously put out updates on Telegram, Slack, Reddit, Facebook and Twitter before, during and after the ICO campaign. This provides an important venue for transparency and gives the investor a good insight into how progress in the company is ongoing.


Lack of GitHub Activity or Dubious Activity

Projects with open source code usually have their code hosted on Github. This provides the project team an easy way of managing their software and it also provides transparency for the would be investor because you can easily check the progress of code on the project’s Github.

A good project will have lots of original code to show that they are really building something.

Some scam ICOs have resorted to padding their github with copies or forks from other projects to make it appear that there is work being done, so be sure to watch out for these ICOs./p>


No Process for Return of Funds

In case of the ICO failing to meet the Softcap (raise adequate funds during the ICO), investors should be made aware early on how they can get their funds back. This makes the ICO company more credible with its offering.


Tokens Favoring the Team

Not all of the tokens sold in an ICO go to investors, a percentage are also retained by the company or team as an incentive to develop the product. Check to see if these tokens are vested or locked for some period of time. Any decent ICO will have these tokens locked for a good period of time to show investors that the team is in it for the long run. Also check to see what percentage of tokens allocated for the team or company have an equitable or fair distribution.

One example of a scam was when virtual currency mining company Paycoin was found guilty of fraud worth $9 million when it made false statements to the public regarding its mining and token allocations. What the public didn’t know is that a large amount of tokens where already reserved for the company’s developers and more tokens were sold than was supported by the mining hardware. Furthermore, newly sold tokens were used to pay off early investors in a sort of pyramid or ponzi scheme. The US Department of Justice found Paycoin’s CEO guilty of fraud. A company must therefore be transparent when it comes to its token distribution guidelines and token allocations must be coded into the smart contract.



All red flags should be considered carefully by ICO investors. However, it doesn’t mean that if a company passes these tests, it’ll automatically qualify as a legit ICO. Some campaigns sound too promising but in the end, they still fail to guarantee the validity of a company post ICO so it is always best to keep tabs on how the ICO company is performing even after the ICO by signing up to the ICOs various social media platforms.

The ico-check team hopes this article has been informative in promoting a culture of due diligence when investing in ICOs.

All the best from your ico-check team!