113
In this lesson you will learn how to recognize potential scams in the cryptocurrency sector and what you should look out for.
The methods of raising funds for new coins are as revolutionary as the blockchain technology itself. ICOs (Initial Coin Offerings) are a breath of fresh air in the fundraising world and may even replace traditional venture capital financing for startups over time.
However, it also has a few disadvantages. Investing in ICOs is risky. Scams are common and sometimes suspicious schemes are very difficult to spot at first glance.
Caution: To ensure that you only invest in worthwhile projects, you should be aware of some warning signs that indicate that a project requires a lot of caution.
Before investing in a project, be sure to ask yourself the following questions:
Do I understand this plan?
Does the project have a real “use case” and can I understand it? What is this plan for? Or are only keywords like AI, blockchain, decentralized, revolutionary, etc. used? If a project’s white paper doesn’t make it clear what the project’s goal is and you read on and find yourself more confused than ever, caution is advised. If a project doesn’t make sense to you, you shouldn’t invest in it.
Can this project have real benefits?
Can this project be profitable? If not, it will get little attention because people only buy things they value.
If something looks suspicious to you, it probably is.
After browsing the website, watching videos about the project and reading the white paper, but still not sure what the project is trying to achieve, you should try the infamous duck test: “If it looks like a duck, swims like a duck and quacks like a duck, then it’s probably a duck.
Does the ICO project really need blockchain?
Does this project really need blockchain technology to function or will it work without blockchain? The white paper should clearly explain why blockchain is needed within the project and what role it plays in future product development. You should really only invest in projects that are revolutionary and offer a unique service right after their token ICO.
Who is behind this project?
Of course, every now and then, people who appear out of nowhere and have no track record in the industry have brilliant ideas and are busy launching the next big thing on the scale of Google. Unfortunately, however, you’re far more likely to be scammed by actors you didn’t even know existed than by reputable crypto entrepreneurs and developers.
Ideally, the founders are business oriented and already successful in the industry. For example, they have won awards, they run well-known and established companies, their photos and bios appear in the team section of the website, etc.
The only exception to this caveat regarding anonymous actors is the Bitcoin Project, created by Satoshi Nakamoto, who still maintains a pseudonym.
Do your own research.
If you are interested in a project, you should show your initiative and find out as much detail as possible. Read white papers and posts on social media like Medium, Telegram and Discord, interact with others and find out everything you want to know. However, never base your decisions on someone’s internet posts, such as forums.
Do a project’s “bad times” show up in the roadmap?
Every serious project should present a clearly structured plan that is always up-to-date and includes all project phases, old and new goals and milestones. If the project plan is incomplete or unstructured, something is wrong. Remember: No matter what project you are interested in, if there is no roadmap available, you should reconsider your investment. Don’t forget to do your research.
Can you chat with the founders?
We can all imagine how busy the schedule of project initiators must be. Those who approach a project with passion still make sure to allow enough time to interact with their community and not disrupt the flow of information. It is ideal if the founders of a project are reached through Telegram or other social channels and regularly informed about the project.
It shows professionalism when project managers keep their community informed about the current status of the project and any changes. This means that they value the opinion of their community. If project managers are keeping a low profile or are unwilling to comment, there may be a reason.
- Attention: If a project meets all the requirements, it is not guaranteed to succeed.
People who do not make hasty investment decisions and invest carefully will learn to recognize how an ICO was created for purely fraudulent purposes. If you spot a scam early, you can invest in an ICO instead, which will pay you back in both time and money.