How to Identify Cryptocurrency and ICO Project Scams

6 Signs a crypto project is a scam

How to Identify Cryptocurrency and ICO Project Scams

Have you ever invested money into a cryptocurrency project or ICO just to discover that it was a scam later on? Or maybe just looked at the website of a new ICO project and thought that something is off? Here’s how to identify cryptocurrency and ICO project scams by inspecting some vital details.

1: More money is spent on marketing than on improving the tech

There is no sure way to compare how much funds exactly does an ICO spends on advertising or R&D. It is a commercial secret. However, it is always possible to compare the quality of the website/ads with the quality of an actual product. If the product or service is not out yet, it is better to wait and see if the marketing claims stand true before investing money into the tokens.

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2: The project guarantees its token price growth

How to Identify Cryptocurrency and ICO Project Scams

One of the best ways to identify cryptocurrency and ICO scams is when you see a project guarantees its token price growth. The market is completely unpredictable. If the project makes bold statements about the future price of the tokens it sells (In two months, the price of our token will increase by 50%!) or even demonstrates a graph with projected parabolical token price growth, it is a massive red flag. Of course, the startup can state that its token is likely to gain value due to:

  • The increase of the number of P2P network users (Metcalfe’s law).
  • The gradual decrease of the number of tokens existing (a token ”burning” mechanism, for example). For example, Binance burns its BNB tokens.
  • Other logical reasons. For instance, the token serves as utility token and its demand will grow with the growth of the number of users.

Nevertheless, no self-respecting crypto project will try to predict the future price – it is impossible. If you see some kind of such prediction in the marketing materials of a startup, it is advisable to stay clear of it.

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3: Fake information is provided on the website

In case there are doubts about any information provided on the website, it is better to check it. If the webpage is mostly plagiarized, the facts stated there do not match the facts that can be found elsewhere, it is time to become especially careful. Here is how you can check the project’s materials:

  • Put some of the images (especially ones showing the team members!) through the Google reverse image search.
  • Put several paragraphs of text in marketing materials through any of the free online plagiarism checkers. If the text was copied from somewhere, the plagiarism checker will show the source. This way, if the startup you checked ended up being a scam, you will find the original project with similar goals you will be able to invest in.

4: The use case doesn’t make sense

Even though the blockchain and DAG are wonderful technologies that can be implemented in the financial sector, or, for instance, in logistics, it does not mean that every type of business needs them. Remember: sometimes “blockchain” is just a buzzword.

Can the team developing the project clearly answer in its marketing materials why a certain area needs blockchain? If not, it is most probably not worth investing in.

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5: The whitepaper is too abstract

Even though whitepapers can be very different, bad ones have several things in common. First of all, they are full of marketing talk. They try to convince the reader that their product is the most innovative and groundbreaking without actually explaining why exactly the technology is so remarkably good. Don’t fall for such tricks.

What’s more, bad whitepapers are written in such a way that they don’t actually tell a lot about how exactly technical aspects work. The good ones are usually clear and well-structured. The bad ones, on the other hand, are hard to read, with a bunch of ideas explained in illogical order.

Here’s what you should be looking for in a good whitepaper:

  • SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis. If it is present, it shows that the project is aware of competitors and actually plans to enter the market (= not run with investors’ money).
  • The goal of the project. Why does the world need yet another cryptocurrency?
  • Financial models. An explanation of how it all should work economically.
  • Legal concerns. With new cryptocurrency regulations being introduced all the time, it is vital for the project to deal with them to survive.
  • Some kind of explanation of the technical backside.

If most of these points are present – great, the project can be trusted. The whitepaper is good. This is the best-case scenario.

And no, a bad whitepaper is not even the worst-case scenario. The real worst-case scenario is the absence of any kind of whitepaper. If the project doesn’t have any document at least remotely resembling the whitepaper, it has to be avoided at all costs.

6: The roadmap of the project is overly ambitious

Does the ICO claim that it will launch several different services in the next month? Does it plan to have one of the world’s largest crypto exchanges in half a year’s time? Does it want to completely disrupt a major industry within a year?

If the answer to at least one of these questions is “yes”, then the project in question is either:

1) A scam trying to attract investors with bold statements.

2) A team of inexperienced entrepreneurs not realizing how big the amount of work that has to be done in order to achieve such a goal is.

Needless to say, it is better to avoid such projects. Any potential buyer of their tokens is likely to lose money because the startup will turn out to be a scam or will not succeed due to incompetent management.

The project has no code published on GitHub or a similar platform

Okay, just because the project is closed-source and prefers not to publish the code online it doesn’t necessarily mean that it is a scam. However, if it is not the only suspicious thing about a certain ICO, then it is better to be careful.

On the contrary, if the project has a well-maintained GitHub page with loads of documentation, it is a very positive sign. Thanks to GitHub, it is also possible to evaluate how active the startup’s development is. Just check the date of the latest commit and compare it to other projects’ pages.

For example, here is how Ethereum’s GitHub page looks like:

The round-up

It is not that hard to identify cryptocurrency and ICO scams – you just have to know where to look. When it comes to ICOs and cryptocurrency companies seeking investment, there is a golden rule. It states: if it sounds too good to be true, it probably is

Scammers are counting on the greediness of investors willing to multiply their capital as fast as possible. Don’t fall for this trap. Also, do not believe the marketing talk. Do your own research and you will be fine.


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