How to quickly spot an ICO scam by@jordangonen
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How to quickly spot an ICO scam

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Everyone knows roughly how an IPO works. A private company ready to bring their offerings to the next level enters the public market with the hope of fundraising through stock sales. If they bring in enough stock sales and continue to perform well as a company, their value soars.

But in the modern, digital age, we know there is a chance that “initial coin offerings,” (ICOs), with their sudden rise in popularity, begin to entice companies to stay away from traditional public markets.

An ICO, at its core, is somewhat similar to an IPO: in order for the public market to place bets on organizations with high growth trajectory, instead of buying stocks, they can buy “tokens” during the first public token sale. This allows for partial ownership and investment in the blockchain implementation, and the tokens can increase in value just like a company’s stock.

The continued rise of blockchain technologies like Bitcoin — which is now collectively worth over $120B in value — and Ethereum — which has raised over a billion dollars from ICO events for its platform — is making the risk of investing in an ICO seem a little more enticing.

This hype can be extremely difficult to navigate. Who do you trust?

While there are definitely some companies building innovative things on top of blockchains (and in the crypto space generally), there are many fraudulent groups who are looking for a quick cash grab. The field can be even more confusing to navigate when malicious groups get celebrity endorsements. Surely a trusted face would vet whoever they support?


Let’s take DJ Khaled for example. From a now removed Instagram post, Khaled says

“I just received my titanium Centra debit card,” all while posing under fancy artwork with a bottle of apple vodka. “The Centra Card & Centra Wallet app is the ultimate winner in Cryptocurrency debit cards powered by CTR tokens! Use your bitcoins, ethereum, and more cryptocurrencies in real time across the globe. This is a Game changer here. Get your CTR tokens now! #CryptoBilli #Bitcoin #Ethereum #Digitalcurrency.

Aside from this being uncovered as a non-disclosed paid endorsement, investigations later found that the CEO of this company didn’t exist. The so-called experienced leader with tons of industry knowledge was in-fact nothing more than a stock photo and a fake name. Knowingly or not, DJ Khaled tricked many into throwing money at an ICO that had no intention of following through with a product. The only goal from the beginning was tricking people into investing and then running with the cash.

Khaled isn’t alone. Lots of celebrities, from athletes to models to musicians are trying to enter the blockchain coin space and ride off the wave of successful ICOs to maximize their investments.


If you want to get involved in the blockchain movement, but you are unsure how to spot a scam from a true innovative venture, here are some easy tips:

1. Research the team

If you haven’t heard of reverse Google image search, now is the time to learn how to use it.

Many of the biggest debunkings in the ICO space came from people who tried investigating the team. For example, AIOS was identified as a scam by a user in the community who was able to cross reference the “Marketing Lead’s” photo as a generic stock image used in various other locations. Like in Khaled’s endorsement, the team that was said to be experienced in the space actually didn’t even exist. Giving your money to real people is step one of not trashing away your investment.


2. Look for a whitepaper

It’s really easy to set up a website splash page with a few graphics and some general marketing text. What is substantially harder is actually outlining the intricacies of how your tech will work.

You do not only want to see a very thorough whitepaper, but also look for a variety of complementary resources such as SWOT analysis, financial model, wallet design, competitor analysis, institutional studies, and more (Ex: Naga provides all of this directly on their main website).

If you want to know if this is a sound business that will be around past the ICO, here is the place to start doing your own research. Make sure there is a strong business case for this technology. Sometimes you have to ask yourself…is this project inevitable? Or is it going to fade away quickly?

3. Benchmark their progress

The fraudulent ICO that DJ Khaled was promoting on his Instagram wasn’t run by technologists. It was run by previous car salesmen.

The purpose of a legitimate ICO is to kickstart a project into fully scaled development with venture capital or private investing. In order to do this, the organization should have some form of developmental or product timeline that you can compare to other organizations and see if their benchmarks make sense.

The more transparent and open to the community a project is — the more likely they are to be viable.

Look, for example, at an upcoming ICO by by Aigang.Network. Not only do they have a clearly laid out roadmap for the public to look at, but they have proof-of-concept apps that are available on both iOS’s App Store and Android’s Play Store. This is a good first sign as it shows they are willing to be public with their work. It is surprisingly challenging to find other ICOs doing similar things.

Realize that even if a blockchain startup passes all of these tests, it doesn’t mean for certain that they aren’t trying to scam investors out of their money.

It also definitely doesn’t mean that they will be successful; blockchain is still a risky space with lots of technical challenges, so no one is a guaranteed success. But if you are the bullish type who is looking for the next Bitcoin, make sure to check all your bases for you make your investment.

Thanks for reading!


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