Since its inception, Blockchain has been touted as a transparent and unfounded technology that reduces friction in peer transactions. Ironically, its most famous application, the cryptocurrency, has become notorious for frauds and scams of all kinds. This is in the form of identity theft or fraudulent ICOs.
The few projects that have wreaked havoc through sensational stories about the generous spending of ICO funds or the list of false advisors justify a reaction that produces preventive measures.
The scammers are obviously aware that the average cryptographic investor is looking to make quick money and take advantage of that desire. There are a couple of things that newcomers to the crypto space can look up as alerts.
Initial Offers of Currencies, by its abbreviations in English ICO; emerge as the clear winner in the easiest way for companies to take advantage of unsuspecting retail investors. There is a great variety of coins that have raised millions of dollars with only one technical document and no product.
It goes without saying that a decent portion of these projects lack real business plans and are a way for entrepreneurs to collect money quickly and easily from an international audience of investors who can perform less diligence due to their initial venture capitalist.
Countries, including China, have discovered that the overwhelming number of projects that have tricked retail investors does not justify the cost and risk associated with regulating that industry and they have placed a blanket ban on ICOs.
Another way for the big scam, are the media; since many false profiles have been created in networks like Twitter, Linkedin, Telegram and even fake websites that appear in the first of the Google search results through Google Adwards that request ETH or BTC to involuntary retail investors.
That's why many Twitter accounts have (Not Giving Away ETH) or (Not Aking for ETH) as their second name in their profiles. Many companies explicitly state that they will never request money through Direct Message on social networks.
Companies can choose to raise money by falsely declaring famous people as consultants and even inventing profiles of LinkedIn engineers. Companies can also include people like CTO, CMO who are part-time contractors who do not devote time or attention to the project.
The executive heads can also manufacture the companies for which they have worked in the past, their positions in these companies or even the titles they received from prestigious universities.
Although ICO offers access to international projects, retail investors must conduct their individual research on the management team, especially because ICO projects have products that are in the early stages of their development phase and adoption cycle and depend mainly on the capacity of the administration.
The first rule that comes to mind with respect to ICO is to never allocate more capital than you can afford to lose. This is because it is not difficult to compare investments in this sector with a bet on the ability of the management team to fulfill their promises and develop their products in the way they were detailed in the work plans of the products.
Scam or not scam, you never know how fast the team can deliver your product and market it to a majority audience. The company may also be affected by trends in the wider cryptocurrency market around the price fluctuations of Bitcoin and Ethereum.
Research is the difference between the success and the fall of the aforementioned dangers. You can avoid fraudulent ICOs if, for example, you study the development team, the whitepaper, Github and other related information. Credibility is very important.
If a project or gift sounds "too good to be true", consumers should be on guard and check with others in the community through Reddit, BitcoinTalk, Telegram, etc. Users should be aware of false profiles and ask the person they are talking to on social networks to verify their identity through other methods, be it a corporate email, etc.
The best way to avoid falling into these various scams and shadow schemes is to identify common characteristics such as: false profiles, ponzi schemes, multilevel, lack of codes, inactivity in specialized networks such as Github, among others. More importantly, it is worth acquiring knowledge and understanding of how cryptocurrencies work and the underlying technology that allows them to arm themselves against these frauds.