ICO Scams – How to identify ICO scams? What are the red flags?


ICO stands for initial coin offering and the term is really picking up in the crypto trading market, as many as there are advantages of making a calculated investment, there certainly are several disadvantages as well. Starting with the risks of investing in ICO, the absence of any regulations turns many people off. Unlike as in the case of IPO which are monitored by several regulatory bodies and that have a long approval process post submitting all the legal documents, ICOs neither have a regulatory body nor are there any legal documents other than the White Paper that only outlines the technical aspects and the plan of growth.

ICO’s do not fall under any specific geographic region and thus it is not regulated by any specific government or financial institution. ICOs do not go through any due diligence which is one of the first step taken before making any investments in the financial industry. This helps the investors understand the investment risks that they should be aware of. Most ICOs, in fact, do not even have a proven business model and sometimes don’t even have a ready product and it is thus very risky to make any sort of investment in them. As the ICO’s are not at all regulated, if the issuer absconds with the money, there is little that can be done to retrieve the funds.

If you are interested in making an investment in the ICOs then you should be very cautious and follow some guidelines to protect yourself. Here is some reason why it is risky to invest in an ICO and how you can be careful.

Lack of regulations

The US Securities and Exchange Commission(SEC) has not yet issued a well-defined ruling on the ICO tokens and investments, none of the other major countries or their Exchange regulatory bodies have taken a stance on monitoring or regulating the ICOs which means that the ICOs on the internet is unregulated and the matter of trust always arises. There is always a debate on which token sales are subject to securities regulations and how the rules might impact the start-ups that the SEC finds to be non-compliant. The safest investment route is to only invest in start-ups that conduct their ICOs in coordination with legal firms and restrict the token sales to accredited investors. However, this is not possible in most cases, it is thus advised to research the team members, read the whitepaper, understand their ideology and their plan for the future before making any investment. We highly recommend you invest in an ICO only if you believe in it and not just because it is in the hype of sale.


Every investor needs to be aware of the chances of no returns and while ICOs provide start-ups with the opportunity to raise huge capital that will eventually help them to launch their projects, the majority of the start-ups will still fail as a rule of life. This can result in much lower or even zero returns for the investments made, the best way to avoid this is again by doing a proper research or by consulting an in-depth ICO research reports before making an investment decision. There are several ICOs with a whitepaper that doesn’t have much of a significance, it is important to understand the product that the issuer is aiming to build before making a decision.

ICOs have always been highly speculative and the investors need to be prepared about the volatility of the market and the chances for a potential loss. While an ICO whitepaper might state an impressive return, it is an optimistic goal and not a certainty. It is thus highly important to consult the market experts, look up the business model understand the growth process to make any purchase decisions.

Frauds and Attacks

Yet another aspect to be careful about is the cyber-attacks, crypto finance is a complicated industry without any clear regulatory guidelines or best practices. The cybercriminals put in their attempts to find opportunities to steal from investors and ICOs in a few cases. Recently Chainalysis, a cryptoanalysis firm reported that an approximate of about 10% of all ICO funds end up in the hands of cybercriminals. The most common attack is the phishing scam where the attacker impersonates to be another person such as the founder of a famous ICO and then deceives them into revealing personal details that allow the attackers to send the funds to their account.

As most attackers operate from remote and unregulated areas, they have tools to conceive their identities and the regulatory authorities have already warned the ICO investors might have limited ability to recover their funds in an event of fraud or theft. Most ICO transactions happen in Ethereum or Bitcoin which cannot be reversed once the transaction goes through, this results in high chances or fraud and several fake ICOs end up minting money.

The best way to avoid these risks is to go through a regulating authority if available, when such an option is not available, the investors are advised to research the complete website, consult the in-depth research options and then take the calculated risk to make an informed decision.

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