7 Tips on Avoiding ICO Scams

7 Tips on Avoiding ICO Scams

Some people, hopefully very few, might think that cryptoland is a technotopia filled with rich nerds driving their autonomous Teslas around Silicon Valley. Most people that know about crypto understand that there is a dark side, and it’s something that needs to be covered in a fair and balanced way so everyone understands the risks involved. We also want to make sure people aren’t scared away from technology that’s going to be heavily integrated into our financial system in the future.

A recent study by Statis Group identified more than 80% of the ICOs (Initial Coin Offering) in 2017 as scams. The rate at which these ICOs came onto the market is really staggering. In 2013, there were only 14 cryptoassets on the market, in 2018 there were 1,500. The amount of money raised through these ICOs is even more impressive. Anywhere from 11 to 22 billion dollars was raised from ICOs in 2018. The actual numbers are difficult to pinpoint due to lack of rules and transparency of some of the projects.

There’s a dark side to everything. -Prince

A lot of ICOs walk a fine line between being fraudulent and legitimate. They are very similar to penny stocks on the stock market. Fortunately, the SEC (Securities Exchange Commission) is beginning to take the reins and clear the muddy waters so companies and investors can be more sure that their feet are on solid legal ground. On March 8th 2019, one of the biggest ICO shakedowns took place when they arrested Konstantin Ignatov for his role in OneCoin. According to US prosecutors, the Ponzi scheme brought in about 4 billion from its victims.

As long as you exercise due diligence, just like with penny stocks, you can identify legitimate opportunities and make money. Here are some tips to separate the wheat from the chaff.

1 – Check the Bitcointalk.org forum

This is the most popular forum dedicated to all things crypto. Find the first post that mentions the release of the project and then look for any red flags. Press Cntrl + F to search for keywords like ‘scam’ or ‘con’. You can also message the developers to see how responsive they are.

2 – Team and Tribe

This could be the easiest and most informative step. Find out who the founders, designers, developers, etc. are and then find out if they have any experience in crypto. LinkedIn is a great resource for this. Also, dig into their social media presence on Reddit, Twitter and Facebook.

This individual wears many different hats (and hairstyles) in his company.

3 – Project Progress

Do they have a useable product yet or is it just vaporware? Many successful projects have been developed by not starting out with a working product so just add this to the log of information that you’re collecting. If well known VCs (venture capitalists) have invested money into a project then it probably has some credibility.

4 – Is the Token Necessary?

You can’t have an ICO without a coin. A lot of projects will fabricate a story that really stretches the need for a token at all. Try to figure out if it’s necessary or if it’s just being used as a cash grab.

5 – Fundraising Techniques

The developers need to be able to fund their project, but watch out for token distributions where team members get close to 50% of the tokens.

6. Read the Whitepaper

If you’re going to lay down your hard earned money to invest in one of these projects, you owe it to yourself to understand what the project is about and how the ICO works. At least read a few pages of the whitepaper, and then do your own research on the problem they’re trying to solve. Do you think their product brings real value to the world?

7 – Code Quality

If you have any sort of programming experience, you should head on over to Github and take a look at the code, are there 1000’s of lines of spaghetti code strung together or does it look like each function is well designed and commented on. Even if you have no programming experience, take a look at how the code is commented. It will give you a good idea of what the programmers were thinking when they created it.

Brendan Eich is the founder of BAT/Brave – a project that checks all of the boxes above.


This might come off as me shilling for Brave but take a look at their GitHub and you will see well structured and documented code. The white paper is a very insightful read, it made me realize how broken the current advertising model is and why content creators/consumers should be getting a larger share of the profits for their time and attention. The token distribution information can be found here. The token is necessary since users get paid with it by watching advertisements. Also content creators will earn BAT by serving ads. I’m writing this post in the Brave browser right now so they definitely have a working product – check it out!

Brave’s team is one of the most impressive teams I’ve seen so far in this space. Their customer service is absolutely amazing. Do a little research on Brendan Eich and his impact on the web/browser, and the rest of the team. If another project you’re interested in checks all of these boxes, you’re probably onto something. Most people, I started out this way, are emotional investors. Let your emotions guide you to specific projects that you’re interested in, then sit down and objectively evaluate each one by going through this checklist. ICOs are not a fad, we’re going to see a massive surge of small, legitimate businesses raise money through this medium in the future.

Disclaimer: I do own some Basic Attention Token (and I want to give you some, go read my other post and claim yours!) Also, the above references an opinion and is for information purposes only.  It is not intended to be investment advice. Seek a duly licensed professional for investment advice.

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