How to Identify a Scam in the Crypto World

Scams are nothing new to this world, people who dream of making a quick bank by deceiving others has been going on for decades. Multi level Marketing schemes are a thing of past, ICO scams are where these guys are making their money these days.

What is an ICO and how is it related to CryptoCurrency?

An Initial Coin Offering or simply ICO is the sale of a token, and in exchange, you have to pay either in fiat or crypto currency. ICOs ask for funding as initial investments just like any startup would and in return they promise the investors some incentives later on.

When an ICO company keeps the original investment and holds a major portion of the token sale for themselves, that’s where the problem lies.

What is an ICO Scam?

ICOs are a cheap way to finance artificial development without any commitments. They are a scam in itself because there is no insurance on the failure to deliver.

ICO’s crypto’s don’t have well-documented proof that their business roadmap is working. Purchasing into one is similar to investing in a startup business with no evidence. It’s risky. More times than not when you invest in, you are investing in a research project, not a company. Yes I know, it is a little harsh assessment but an excellent sobering thought to possess.

Why Does the ICO Scam Work?

People will be people; there is a lot of money to be made on speculation. The lure of making back your money quickly is a great selling strategy. It is a new generation of Ponzi schemes. A simple reason on why ICO is so popular and works is because they are not regulated formally by any financial jurisdiction, and exist in the crypto ecosystem where there are fewer checks and balances.

Your investment is extremely liquidatable; you can cash out whenever, which makes this space quite distinctive and exciting. Combine this with your typical individual who understands little of investing and only throws money at things. Hype fuels a good deal of gains in crypto’s which adds more danger, as any marketing firm can tell you Hype can be bought or created artificially.

How to Not Fall into the ICO scam?

With investments in ICOs always remember, you are not investing; you are mostly gambling. Most of these companies will likely fail to deliver on their promises. Maybe they never intended to make a product in the first place.

The first rule of thumb when it comes to investment in new ICOs is never investing in them unless you have seen a working prototype of their product in action yourself.

Due diligence is the key when it comes to research in the upcoming ICOs and the products they are offering. You cannot just rely on other people’s research, comments, thoughts or analysis. There are always individuals who pass off paid promotion content as their research.

It’s always a good idea to Invest in something you do understand. Since you already know the basics of the product, you can dive deep and learn about their technology, market viability, supply, demand, roadmap, incentives, etc.

As you are probably aware, the huge majority of businesses fail within a couple of years of starting. The businesses who do not, get purchased or acquire significant additional amounts of funding. They have good revenue streams, clients and well-documented evidence that their business proposal is functioning at some level.

We will for sure see an ICO perish later on. It is possibly a bit too new at this time. But at least among the recent ICO’s if not more, that sounds all amazing and contains millions of dollars in market cap, will fall into nothing. The collapse will not happen overnight; it is going to happen over a year or two even years. We have already seen crypto’s do it.