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Scam Diagnosis: 14 Signs of Non-Viable ICOs

According to Satis Group LLC, 81% of Initial Coin Offerings are scams. Only Ifan and Pincoin duped the investors for $660 million, while the total sum of losses amounts approximately to $1 milliard. We have analysed the case history, studied the symptoms and collected the main signs of non-viable and scam startups with examples.

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Cryptoassetsrank.com Published on Jul 05, 2018
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According to Satis Group LLC, 81% of Initial Coin Offerings are scams. Only Ifan and Pincoin duped the investors for $660 million, while the total sum of losses amounts approximately to $1 milliard. We have analysed the case history, studied the symptoms and collected the main signs of non-viable and scam startups with examples.

1. False information about the developers

No information about the legal entity. Sometimes the scammers do not publish the name of the company or simply make it up. The information can be checked in the registry of companies. For example, in the USA a request should be sent to the state's company register.

Fake contact details. On the websites of scam crypto-startups there is often no e-mail address or telephone number, or the phone code does not correspond to the region of the office location. It is recommended to check the address on the online maps, to phone at the telephone number and to email a question and wait till you get a reply.

Straw men. The scammers often use fake photos. For example, in WindMiner instead of the photos of the developers they used the photos of a Korean pop-star and a maniac. In Declouds they used Photoshop to put a photo of one of the startup's developers onto the photo of a bankers' conference, which he had never visited. You can check if the photos are real by using the Google picture search.

The original photo

A photoshopped picture by Declouds

2. Weak team

A small team. Viable projects are created by a team of 15-20 specialists: programmers, designers, marketing experts, community managers and others. A team of 3-5 people will not be able to perform the task, and the project will fail.

Lack of experience. If the project developers have no products that are already functioning or no examples of code at GitHub and other repositories, they might not have enough experience. The experience can be assessed by their social media profiles: you can learn about the developers' educational background and their relation to the project field.

There are no advisors. Advisors give consultations on complex legal and economic issues: they take part in making a white paper, assessing the legal status of tokens based on Howey test, studying the market requirements and the token economy. In the majority of scam startups there are no experts because it is expensive to invite them.

3. Lack of activity on social media, professional websites and at events

The scammers do not waste time on developing a project community, do not give the users all the information they are interested in:

  • the developers do not run accounts on Twitter, Medium, Bitcointalk or other social media and specialized websites;
  • they post information rarely or publish low-quality content: texts that lack substance or are full of buzzwords;
  • they do not provide feedback: they ignore questions from the users or give rare and vague replies;
  • they do not participate in specialized international conferences or send rank-and-file employees instead of the managing director.

If the team does not maintain the development of the project community, it is likely to be a scam. The presence of a community itself does not guarantee the honesty of the developers, this parameter should be assessed only in combination with other parameters.

4. Unfair marketing

The developers of promising startups spend time and money on marketing. For example, Wings DAO spent $100,000-150,000 on marketing. Scammers, who want only to collect the investors' money and to disappear, act in a different way:

  • they publish only paid promotional posts and do not publish any articles with useful information for the users;
  • they publish on blockchain sites but ignore the websites that specialize in their project's field;
  • they use spambots for the community and generate fake likes and reposts;
  • in presentations and publications they do not speak about the real benefits of their product and limit themselves to vague generalities;
  • they attract non-targeted traffic, run aggressive marketing campaigns sending out spam messages with referral links.

A vague general description of the Platincoin scam platform

5. Project's endorsements are untrustworthy

Celebrity endorsements. Celebrities promoting ICOs do not invest their own money, do not scrutinize the project and do not bear any responsibility. For example, the Centra project promoted by Floyd Mayweather was declared a scam by the SEC.

Recommendations given by non-professional advisors. The scammers invite those advisors who are not well-informed about the field, do not spend time on examining the project and are only interested in the amount of investments. You can identify non-professionals by yourself. They do not run accounts on social media and do not participate in discussions about similar projects. If you turn to them with a question, they will either ignore it or reply with some platitudes.

If a startup is promoted only by celebrities who get paid for it or untrustworthy advisors, it is likely to be a scam. Pay attention to the recommendations given by the opinion leaders who have earned respect on specialized websites and forums. Check the project's reputation in the ICO ratings that value their reputation.

6. Newly-created or vulnerable website

The founders of scam startups can be tracked by the newly created websites. For example, the founders of EROS.vision platform launched an ICO four days after the registration of the project domain.

Website registration

ICO launch

You can check the website history at whois service (who.is, whois.com, whois.com.au or others).

Unscrupulous developers do not care about the website security. Hackers can hack the website if:

  • it is created on Wordpress, Joomla or other engines that have vulnerabilities;
  • it is located on a dedicated hosting together with other platforms.

You can get the information about the website's engine and hosting from the developers, for example, on social media or in a messenger.

7. Questionable white paper

The founders of ICO scams seldom spend time on drawing up a white paper. Be careful if:

  • there is no white paper or it is copied from other projects;
  • the white paper is too short and incomprehensible, it has no detailed information about the project, the technology or business model;
  • it consists of buzzwords, i.e. generalities and smart-alec terms that should impress inexperienced users;
  • it does not contain the results of a marketing research, competitors' analysis and analysis of the market requirements;
  • it sets large-scale tasks that are unattainable, for example, to surpass Google;
  • there is no roadmap with a plan of developers' activities and the project deadlines;
  • there is no information about the rights of the token holders, no legal way to return the money if the project fails.

For example, the DADI scam was exposed due to the stolen white paper. The DADI founders stole the excerpts from the description of SONM. You can check the uniqueness of the white paper with the help of online services identifying plagiarism, for example, Plagiarisma or Duplichecker.

SONM and DADI white papers

8. Problems with the roadmap

The responsible developers make a clear statement about how their project will be developing. The scammers act differently:

  • they either do not publish a roadmap at all or steal it from another project;
  • they indicate vague deadlines or ill-defined goals without any detailed information;
  • they mix up dates, indicating different deadlines in the roadmap and the white paper;
  • they indicate deadlines but fail to meet them.

For example, the founders of Miroskii Coin want to set up their own decentralized bank that will be working with Visa, Mastercard and American Express cards. In their roadmap the team has stated vague goals:

Miroskii Coin roadmap

9. Empty repository

The founders of blockchain projects make the source code available to the public, for example, in GitHub, GitLab, Bitbucket or other repositories. Do not trust the project if the source code is not available or if it is available but is not being updated. You should check the published data by yourself or discuss it with the programmers on Bitcointalk.org or other crypto forums.

10. Problems with the project

There is no viable product. The scammers cannot provide MVP, smart contracts or at least a clear technical rationale for their development.

The blockchain technology is not a requirement. In scam projects the developers are trying to solve a problem, for which the use of decentralized registries is not required.

The project is not unique. The founders of hype startups introduce blockchain for solving the tasks that have already been solved.

Such startups do not meet the market needs. If the project founders have not carried out the competitors' analysis and are offering a revolutionary idea that has never been worked over before, it might be out of demand on the market.

For example, the developers of Naviaddress offered to assign a unified digital ID to any addresses and physical objects on the map that will be interpreted in the same manner all over the world. The idea failed because of the two reasons:

  • the project is not unique because there are geotags on Google Maps, tags on Wikimapia, Foursquare and Tripadvisor.
  • there is no need for blockchain because a decentralized storage of geotags has no sense, since nobody will ever try to forge them.

11. ICO can be banned

In some countries, for example, the USA, Canada and Germany, there are strict rules regulating initial coin offering. In the USA, the SEC can stop the fund raising, if the company organizing it has not registered and has not provided a detailed booklet about the tokens.

If the project that the developers bring to the market violates the country laws, it is a scam. The founders plan to collect the users' money and to disappear before the regulator notices them.

12. Problems with the tokens

The coin is not unique. It can be substituted with bitcoin or other cryptocurrency because it has not got any additional useful function.

  • The coins have no use other than profiteering.
  • The project aimed at mass market releases a limited amount of tokens.
  • The coins are sold with discounts of 20-25% or more: they will be bought and sold mostly by the speculating public.
  • The team leaves 10-15% of tokens to themselves and gets them immediately instead of getting them after a fixed limit of time, for example, a year.
  • The developers sell less than 80% of tokens for free use.

The Token Report analysed 226 startups and found out that only in 20 projects the tokens were used as intended. In all the rest projects the coins were used simply as a speculative tool.

13. There is no money back guarantee, the fundraising process cannot be monitored

The honest developers give a detailed description of investment return terms in the following cases:

  • if they fail to reach the soft cap and the team refuses to continue working on the project;
  • when they exceed the hard cap and part of the requests for purchase of tokens are no longer processed.

The scammers do not describe the investment return terms in the white paper or legal documents.

If the investors buy tokens via a settlement aggregator, it is impossible to check this information. The scammers can publish any sum on the website and say that, for example, they have already collected half of the soft cap.

It is safer to invest into the startups where the transactions are set via smart contracts. The code of the public smart contracts can be seen at etherscan.io or received from the developers. The code contains information about the transactions and it cannot be forged.

14. Fraudulent schemes of work and a guaranteed profit

The founders of ICO scams often promise a guaranteed profit on the investments and give exact figures. If you are promised $1,000 or 200% guaranteed monthly income from the tokens, it is most likely to be a scam. Investment in blockchain startups is connected with high risks and thousands of factors of price formation, that is why it is impossible to give an accurate prediction of the project's profit-making capacity.

Lots of projects where an exact amount of profit is indicated are using scam schemes:

  • Cloud mining. The project founders suggest making an investment and receive income from cloud mining without buying your own mining equipment. It is a financial pyramid that is able to pay you only if there is a constant flow of new investors. This scheme was used in scam startups Biteminer, Gawminers and HashInvest.
  • Investment crypto packages. The developers suggest buying an investment package that will be giving you daily profit. The financial pyramids are able to bring profit only when there is a constant flow of new investors. Such projects do not survive longer than 150-200 days, for example, projects like Bitlandis or Hash Earn LTD.
  • Multi-level marketing (MLM). The scam projects have no real product and suggest registering with a referral link and earn by inviting new partners. Such schemes fail in case there is no constant flow of new partners, which happened, for example, with Onecoin and Centurion Coin.

Now you know the main signs of scam projects. Time to practise: look through our list of potentially reliable initial coin offerings and assess them by yourself.

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