ICO Scams and How to Detect Them

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The prospect of fundraising through Initial Coin Offerings (ICOs) opened-up a whole new world of possibilities for fundraisers and participants alike. ICOs allow them to circumvent the bureaucracy and difficulties that come along with the more traditional venture capitalist fundraising.

As a result, it is one of the most popular methods for startups to start raising the necessary funding to conduct their operations.

ICOs have become so popular that in just the third quarter of last year, they managed to raise funds totaling well over a billion dollars. That’s a lot more than the funds that have been raised in the blockchain world through venture capitalist fundraising to date.

The New World of ICOs

As we are seeing in the cryptocurrency world, new cryptocurrencies are coming out one after another. The fundraising required for the developers to make the cryptocurrencies is done by ICOs. That’s one of the main reasons why ICOs are launched. With over a couple of hundred ICOs launched last year, it is a herculean task to conduct proper vetting on all of them to determine the legitimacy of each and every one.

Due to the decentralized and largely unregulated nature of cryptocurrencies and ICOs, venture scammers are flocking towards them in droves.

The fintech world has advanced and regulations have increased, which is why the scams being conducted in that corner of the financial world are becoming rarer. However, ICOs are a particularly new hunting ground for scammers, whohave been using ICOs to fund their scams and defraud investors.

Detecting ICO Scams

Due to scammers looking to take advantage of ICOs, it is necessary to conduct your due diligence when you are considering investing in an ICO. Here are a few red flags that you should look out for when you’re considering an ICO for investment.

1.     Not Every Venture Requires Blockchain

Blockchain technology is an amazing new technology that has a lot of potential utility. That being said, not every new venture that’s coming out requires a new blockchain network to be created. The current platforms on the Ethereum blockchain network will actually suffice for the most part.

When you’re vetting an ICO project, you should ask if the proposal given by the ICO really needs the creation of a new blockchain or a new cryptocurrency. Open-Source Projects with Nothing to Evaluate on GitHub

With most of the blockchain projects out there, you will find that they are open-source. That’se of the key features of blockchains. This is why most of the blockchain projects’ coding is uploaded onto places like GitHub so that the coding can be analyzed by everyone online to determine its validity. If the repository is empty where the coding of the proposed ICO should be, it is a sign that more questions must be asked..

2.     Legitimacy of the Team of Founders

Who is on the founding team of the ICO is the most important step when conducting your due diligence on an ICO.

It does not matter how promising an ICO is, how practical the proposal is and how legitimate it seems as long as the people behind the ICO are not verified. In cases where the ICO founders are anonymous or have little experience, you should rethink participation.

That isn’t the end of it.

Even with apparently legitimate founders on the team, there should be a thorough follow up on the identities of the experts involved with the team. Prodeum is an ICO exit scam that fakes the identities of the experts on their team. The bigger issue is that it used identities of three actual blockchain experts to provide a sense of legitimacy to the project – a classic case of identity theft.


Always conduct due diligence when considering participation in an ICO and make sure that every aspect of it is impeccable before you take the leap. ICOs can possibly be highly lucrative but they can also be very dangerous if you fall into the hands of the plethora of scammers out there in the world.

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