X

How to spot a fake ICO (in pictures)

Initial Coin Offerings (ICOs) are part of the cryptocurrency Wild West, but how do you know what is fraudulent and what is legitimate?
By Charlie Osborne, Contributing Writer
screen-shot-2018-09-09-at-14-03-37.png
1 of 9 Charlie Osborne/ZDNET

What is an ICO?

An Initial Coin Offering (ICO), in simple terms, is a way for blockchain-related startups to raise funds. Akin to crowdfunding, the projects generally offer their own brand of 'tokens' in exchange for popular cryptocurrencies such as Bitcoin (BTC) or Ethereum (ETH).

screen-shot-2018-09-09-at-14-01-28.png
2 of 9 Charlie Osborne/ZDNET

ICO, or IPO?

The differences between an ICO and a traditional Initial Public Offering (IPO), in which company shares can be purchased in a traditional manner, are not only related to the purchase of tokens instead of shares.

IPOs worldwide are protected by financial authorities which ensure conditions and particular standards are met, however, ICOs are not protected by the same rules, which may place investor funds at risk with no hope of recovery when they are scams.

screen-shot-2018-09-09-at-14-02-45.png
3 of 9 Charlie Osborne/ZDNET

Why would you invest in an ICO?

Like many angel investments in startups, it is a risk which may later offer good returns. Many ICO tokens promise high returns, which leads many to invest in the blockchain space.

screen-shot-2018-09-09-at-14-00-53.png
4 of 9 Charlie Osborne/ZDNET

What a beautiful website

If an ICO website looks professional, this may indicate a scam. Fraudsters will often spend a small fortune on a spotless website and marketing materials but this money is spent purely to promote trust in potential victims.

screen-shot-2018-09-09-at-14-02-00.png
5 of 9 Charlie Osborne/ZDNET

Too high a return?

A return on investment (ROI) which seems too good to be true often is. In the case of Bitconnect, in which investors were offered a 120 percent return on their investment annually, the company performed an exit scam and rendered its tokens useless, leaving investors heavily out of pocket.

screen-shot-2018-09-09-at-14-03-11.png
6 of 9 Charlie Osborne/ZDNET

What does the project actually do?

Blockchain-related startups appear, offer an ICO, and investors bite -- all without offering one whit of evidence to back up their claims.

If you cannot find project timelines, legitimate whitepapers, patents, or evidence to back up projects, steer clear or risk losing your funds.

screen-shot-2018-09-09-at-14-04-00.png
7 of 9 Charlie Osborne/ZDNET

Fluff and buzzwords

If company websites, whitepapers, and project descriptions are full of fluff, buzzwords, and lack real substance, this is a clear warning sign that all may not be as it seems.

screen-shot-2018-09-09-at-14-04-27.png
8 of 9 Charlie Osborne/ZDNET

Who is running the ICO, anyway?

Research who is running the project to avoid failing for a fake ICO. A quick search can sometimes reveal who actually has experience in the field and who does not.

There are many ICOs out there which are legitimate and have been launched by people who truly believe in their projects.

Those that do will have legitimate social media accounts and email addresses -- and will be available to answer questions relating to their ICOs and blockchain development.

Some scam artists, however, may go so far as to create fake social media accounts to back up their claims, so take nothing at face value.

screen-shot-2018-09-09-at-14-04-53.png
9 of 9 Charlie Osborne/ZDNET

Show me the code and the escrow

If the blockchain startup has no links to samples or code uploaded to repositories such as GitHub, this may be an indicator that there is no blockchain development to start with.

Suspicious ICOs will also ask investors to send their funds to a personal cryptocurrency wallet rather than a legitimate escrow service, and both practices may indicate a fraudulent token sale.

Related Galleries

Holiday wallpaper for your phone: Christmas, Hanukkah, New Year's, and winter scenes
Holiday lights in Central Park background

Related Galleries

Holiday wallpaper for your phone: Christmas, Hanukkah, New Year's, and winter scenes

21 Photos
Winter backgrounds for your next virtual meeting
Wooden lodge in pine forest with heavy snow reflection on Lake O'hara at Yoho national park

Related Galleries

Winter backgrounds for your next virtual meeting

21 Photos
Holiday backgrounds for Zoom: Christmas cheer, New Year's Eve, Hanukkah and winter scenes
3D Rendering Christmas interior

Related Galleries

Holiday backgrounds for Zoom: Christmas cheer, New Year's Eve, Hanukkah and winter scenes

21 Photos
Hyundai Ioniq 5 and Kia EV6: Electric vehicle extravaganza
img-8825

Related Galleries

Hyundai Ioniq 5 and Kia EV6: Electric vehicle extravaganza

26 Photos
A weekend with Google's Chrome OS Flex
img-9792-2

Related Galleries

A weekend with Google's Chrome OS Flex

22 Photos
Cybersecurity flaws, customer experiences, smartphone losses, and more: ZDNet's research roundup
shutterstock-1024665187.jpg

Related Galleries

Cybersecurity flaws, customer experiences, smartphone losses, and more: ZDNet's research roundup

8 Photos
Inside a fake $20 '16TB external M.2 SSD'
Full of promises!

Related Galleries

Inside a fake $20 '16TB external M.2 SSD'

8 Photos