Fraud is Prevalent
At icoexaminer, we have been in contact with dozens of ICOs, communicated directly with most of them and worked in partnership with some of them – those that we ourselves consider a worthwhile, long-term investment.
There is one very clear conclusion that we can draw from what is just under a year now of our experience out in the field: there is a lot of fraudulent activity in the ICO universe.
That is not to say that the majority of ICOs are fraudulent, far from it. However, fraudulent ICOs, whilst in a minority, are nonetheless prevalent. With legitimate ICOs, we have found that they are pretty much all a target of fraudulent activity of one kind or another where so-called hackapreneurs seek out ways and means to siphon off funds from investors.
We discuss both kinds of fraudulent activity – fraudulent ICOs and fraudulent activity around legitimate ICOs – in the sections that follow below.
No Need To Panic
Firstly, note that there is no need for alarm – from our own experience, with a little bit of common sense you can avoid the vast majority of fraudulent traps quite easily by asking a few simple questions and proceeding with some basic due diligence. And even with the more sophisticated ICO frauds out there, there is always something that gives the game away if you put in even just a moderate amount of research.
When it comes to fraudulent activity that seeks to piggy-back on a legitimate ICOs, the same philosophy applies – common sense and due diligence from a research perspective should allow you to avoid any slip ups. Here are some tips.
Avoiding Fraudulent ICOs – Our Two Checklists
When looking into an ICO, ask yourself the following questions – and if you find that you manage to check even just one item on the list, our advice is to walk away immediately.
Checklist One – The ICO Team
- Can the ICO project team point to an existing legal entity that is attached to the ICO?
- Does the ICO project itself have some presence within traditional media as well as crypto-media websites?
- Can the ICO’s major project stakeholders present credible CVs? Do they have established LinkedIn profiles embedded in deep networks within their industry and with solid evidence of historical activity on their LinkedIn profiles?
- Has the ICO project been attracting unambiguous interest from established industry players? You may want to look at the composition of its advisory board here.
Checklist Two – The White-paper Litmus Test
- Is the white-paper well written and well presented with no basic spelling mistakes and no silly grammar errors? A handful of these within even a relatively large document should be sufficient to raise a red flag – no ICO worth its salt would want to publish a serious document littered with basic mistakes when its purpose is to solicit (quite often) tens of millions of dollars in ICO funding.
- Does the ICO present a solid case for the token’s functional value? Most fraudulent ICOs tend not to go into this level of detail – because they do not have a business model to hand, simply hoping instead to attract donations from less discerning investors.
- Does the white-paper go into a level of detail that goes beyond general observations? Fraudulent ICO white-papers ordinarily have an over-abundance of generalisations, and are weak on long and elaborate details. If you think you see pointless filler, it is probably pointless filler.
Please note that we are not asserting here that these are failsafe methods for identifying a fraudulent ICO. We are saying, however, that the vast majority of fraudulent ICOs demonstrate one or more of these behaviours. By adopting a policy of no tolerance for loose practices such as those outlined above, at the very least you are walking away from incompetence, at best you are distancing yourself from fraudulent actors.
Avoiding Fraudulent Activity Around ICOs
The two most common kinds of fraudulent activity that centre around legitimate ICOs are:
- Copycat, impostor websites that have an almost identical domain name which post an alternative fund address. Double-check the fund address by speaking directly with a representative of the ICO team.
- Bots which publish fraudulent web addresses and/or links within ICO forum platforms (Slack, Telegram etc). This often attempt to direct traffic to MyEthereumWallet impostor sites.
Finally, before making a transaction investment, it never hurts to double-check with the ICO team itself for confirmation of the fund destination address. You might find that the larger ICO operations are not particularly reactive to this kind of question, however. If that’s the case, tryocross-comparing the fund address with one or more alternative sources where possible.