How to identify ICO scams

How to avoid ICO scam?

Initial coin offerings (ICOs) have the potential to either greatly increase or significantly decrease your financial well-being, just like any other investment. The difference shows in your crypto-savvy and your ability to pick the finest ICOs. By learning how to properly investigate and evaluate these promising new businesses, you can lessen the likelihood of losing money on fraudulent initial coin offerings (ICOs) and poorly planned endeavours.

However, it is precisely where the difficulty lies. To the same extent that few individuals can distinguish between a solid stock and a scam, the same is true of ICOs. In order to help you get started with your ICO study, we have compiled this tutorial. You may improve your crypto knowledge and make more educated investing selections if you know these seventeen clear signs of a fraudulent initial coin offering (ICO).

Learn About the ICO’s Primary Functions

Many ICOs fail because they don’t provide anything really new to the Bitcoin ecosystem. We’d prefer to invest in an ICO with a distinct strategic value that will help it survive in the long run.
There is a lot of competition in the decentralised market, so an ICO that does nothing new or offers nothing to its users is not likely to be a good investment. 
Get behind an initial coin offering (ICO) that has practical social applications.
The executive summary of a startup’s white paper is a good place to learn about the ICO’s primary features, and the company’s webpage is another likely spot.

Learn more about the ICO’s Team by viewing their profiles.

Top ICOs’s will have developers of high calibre who aren’t afraid to put their names and pictures on the ICO’s website. It demonstrates their ability and dedication to making the ICO a success.
On the other hand, if the creators of an ICO are hiding their identities, you should proceed with caution. This could indicate that the team is either incompetent or is trying to scam investors out of money before disappearing.
It could also suggest that the company has hired a freelancer rather than someone with a more permanent position in the company. In any case, it’s preferable to invest in an ICO whose development staff isn’t shy about promoting themselves and their credentials on the firm website.
On the “team” page of an ICO’s website, you can usually find a list of the developers working on the project, along with links to their LinkedIn profiles and GitHub pages.

Evaluate How the ICO Handles Escrow Payments

Ideally, when you put money into an ICO, it will be held in escrow until the entity running the ICO is ready to use the money. The funding is held in escrow until the project is ready to go. For example, here is how the ICO escrow mechanism works:

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One possible indicator of the quality of the ICO is the reliability of the escrow service or individuals handling the monies. If the company or individuals behind the ICO are trustworthy, then there’s a good possibility the ICO is legitimate. Contrarily, if the escrow you’re using has a poor reputation in the market or is completely unknown, that’s a red flag that the ICO you’re investing in is likely a scam.
The escrow mechanism for every specific ICO can be found in the “ICO Details” section of the white paper, and in many cases, it can be accessed directly on the website of the ICO itself.

Research Public Opinion on the ICO by Reading Online Forums

Facts, there will always be someone else who knows more than you do about some aspect of life. The same is true for initial coin offerings. Even if you could have done your research and come to the conclusion that a certain ICO is a good investment, there is always the chance that new evidence will come to light and cause you to rethink your decision.
An ICO can be better understood by reading what others have to say about it online. A good indicator of success is enthusiasm and participation from the community and the team. Actually, the inverse is also correct. You should probably hold off or reduce your initial investment plan for an ICO if there is widespread disapproval of that ICO.
Initial coin offerings (ICOs) frequently feature prominent social media icons—, Reddit, Telegram, Facebook, Twitter, etc.—either at the top or bottom of their homepage.

Examine How Well built the ICO’s Website Is

You should never underestimate the role that first impressions have in guiding your financial choice. As with most things, ICOs with a poor first impression are hiding a deeper issue. An ICO promoted by scammers who are only interested in making a fast buck is more likely to have a poorly designed website than one that has been professionally built and ready for the long run.
It’s also possible that the group is honest but simply incompetent. The success of an initial coin offering (ICO) can be predicted by assessing the quality of the team behind it. Find ICOs with well-designed, easy-to-navigate websites that explain their offerings in detail.

Learn What the ICO White Paper Is Really About

Any initial coin offering (ICO) worth its salt will have a thorough business plan outlining the many potential applications for its token. The white paper for the project needs to have information about how the token will be used in depth.

The goal is to explain the issue that this token is trying to address in order to entice potential backers to invest in it. If the white paper for the ICO you’re investigating is mostly concerned with the token mining process, you may probably assume that the token itself is not very valuable. The focus on mainly mining by an ICO may be an indication that the value of the coin itself is poor.

Consider the ICO’s current value

Many investors lose money on initial coin offerings (ICOs) because they buy in when the market cap is already too high, reducing their potential gains. Some of the best initial coin offerings (ICOs) to put money into are the ones that haven’t gotten a lot of attention just yet.

This is because undercapitalization is a major problem for ICOs, and investors stand a better chance of seeing a return if they put money into the project before it gains significant growth. This basic principle of supply and demand is relevant to any type of financial venture. The more cheaply priced an initial coin offering is, the better.

Seek out Proof of Concept and User Cases

The existence of a proof-of-concept is a good indicator that an initial coin offering (ICO) has longevity. In other words, the ICO has proven that it can be implemented successfully in the real world. When an ICO has a proof of concept,  It helps you determine if the ICO is worth investing in.
The availability of a proof-of-concept is also useful for evaluating the dedication and investment of the ICO’s creators. This is because developing a proof-of-concept prototype requires financial resources. An ICO with a tested user case is more likely to succeed than one without since it shows that the team is serious about the project.
In addition, when an ICO has a proof-of-concept, investors have the opportunity to evaluate it and search for flaws. By doing so, the development team can improve the ICO’s odds of success prior to launch by closing any such gaps.

White papers for initial coin offerings (ICOs) typically include a section addressing investors’ preference for projects having a proof-of-concept.
In addition, many will feature it noticeably on ICO’s website and multiple social media accounts.

What is the White Paper’s approach to ICO’S security?

The security of an ICO is critical to its success. This is because the the more secure the ICO is, the more investors trust it. Examine the white paper of an ICO to see if it has adequate security.
The white paper of an ICO provides information about the security measures put in place by the developer team to protect investors’ tokens. These solutions should be presented in a straightforward and understandable manner in the whitepaper. Without this, there is a good probability that the tokens are not secured, and you may risk your hard earned investment during an unsecure ICO deal.
However some ICOs do not even mention security in their white papers, which is a significant red warning considering the numerous ICO platforms hacked in the middle of the ICO. Remember to always check white papers for the security protocol.
Some more serious ICOs will provide a security feature on their homepage. Others widely display the following message on their ICO page: “Always inspect the Link and check the contract address before sending ETH to any ICO.”

Check the applicable laws and regulations

Make sure the ICO’s legal structure is valid before putting money into it. Governments have become interested in ICO regulation because of the proliferation of frauds in the industry. Checking the whitepaper for information on the ICO’s legal team is a good technique to ensure compliance with all applicable laws and regulations.
Therefore, it is crucial for ICOs to employ attorneys on their teams. When looking for an ICO to invest in, it’s best to stay away from projects that don’t have a lawyer on either the founding or advisory teams.
Also, you can verify the ICO has complied with all applicable securities laws by reading the white paper and looking for evidence that the company has satisfied the Howey test.
Due to their new status as securities, ICOs must follow all applicable regulations in this area. If the ICO you want to invest in has a structure that doesn’t comply with securities rules, it’s likely a scam or will get bogged down in litigation. For more information, please refer to the whitepaper’s “Legal Considerations” section.

Find out how much was raised in the Pre-Sale

The success of the presale is an indication of how well the ICO will go overall. Two crucial features of the ICO are typically shown in this way:

Effective advertising strategy is the first. When an ICO is able to attract large funding before it even launches, it’s a good indicator that the team leading it is prepared to put in significant effort in the area of marketing, which is essential to the success of the ICO once it goes live.

Second, a successful presale indicates that the tokens being distributed have solid underlying value. For one, most early-stage ICO investors are either techies or VC funds. If these savvy investors are willing to put up money ahead of time, it’s because they believe the tokens on offer have significant inherent value. This could make investing into an ICO a sensible idea if you expect the token’s value to rise over time.
Smart money from venture capitalists has the risk of becoming totally incorrect on their investments, but they have more legitimacy than regular investors in making long-term bets.

Competitor Analysis is crucial

Initial coin offerings (ICOs) are subject to standard market forces. When deciding in which ICO to put your money, the number and competence of its competitors is an important economic factor to consider.
If there are already many of other tokens in the same “niche” as the one you’re considering investing in, it’s possible that the one you’re eyeing won’t see much price appreciation in the future.With so many other competition and tokens to choose from, it may slow down it’s growth.
Consider how unique, original, and innovative  the ICO you’re considering investing in is in comparison to others in the same field. It’s possible that the tokens offered by the competition aren’t as reliable as the one you’re considering investing in, therefore reducing the risk that it won’t succeed in the long term.
To put this into perspective, consider Ethereum, the leading smart contract platform. The fact that it uses smart contracts doesn’t make it unique in this regard. There are numerous alternatives, but Ethereum has emerged as the market leader. This explains why the value of Ethereum has skyrocketed in recent years.
If you want to boost your chances of selecting a successful ICO, you should look for one that stands out from the crowd or that clearly demonstrates the unique features that make it stand out from the competition.
You can tell this by looking at how much effort was put into advertising and media coverage for a specific ICO, which then made it stand out from the crowd of similar projects.
To find an ICO with little competitors to invest in, it’s important to look at the team behind it. If the ICO you’re considering has a well-known development and advisory team, it will likely encourage investment than similar projects whose founders is less well-known.
If the company’s management has addressed its competitors and the demands of its field in the white paper, then finding information about them should be straightforward. otherwise, you might have to conduct some investigating.

Find out if there is a need for the ICO features

Make sure there is a well-established demand for the solutions the ICO is planning to introduce, similar to the advice given when conducting a competitive study.
The white paper has all the information you need to make a well-informed choice. An ICO’s problem-solving strategy should be made very clear. Ambiguous solved issue in the whitepaper is a red flag that the ICO probably has nothing of value to offer because it hasn’t done any market research to determine if there is a demand for the service.
If that’s the case, how can an investor know that they are not being used as a means to line the pockets of the owners? You can tell if people want what the ICO is providing by reading internet reviews of it and evaluating their reactions.
When it comes to determining whether or not an ICO is a sound investment, most of the people who post on online forums like Reddit regarding ICOs and many other crypto related concerns are themselves geeks. It’s best to avoid an ICO if the people behind it don’t seem excited about it or if they offer justifications that similar or better items already exist in the market.
When an ICO is working on a much-needed product, speculation abounds about how much of a change it will bring to the sector in question.
This helps get people excited about the ICO, which increases the odds of its success.
If the necessity for the project isn’t mentioned in the Executive Summary, where it should be, check what the team is saying about the project’s demand on the social media.

Experts in the Field should be Involved

One way to tell if an ICO is a wise investment or not is to look at how many experts in the field are involved. People with a lot of experience in a certain field can clearly identify when a new investment opportunity that will make a profit comes up. So, if they are all talking about an ICO in their field and are particularly happy to invest in it, it’s a good sign that it might be a good idea to invest in that ICO.
The advisory team is one way to figure out how much industry experts are involved in an ICO. If the ICO you’re looking into is run by well-known experts in the field, that’s a good sign for its chances of success.
On top of that, you can be sure that somebody who has spent years building a name for itself in a certain industry would not put his\her reputation at risk by taking part in a scam ICO. You can also find out if experts in a field are interested in an ICO by reading what they say on online platforms. Industry experts talk about great initial coin offerings (ICOs) in print, online, and on TV. Since they took the time to speak further about ICO you are focused in, it shows that the team behind the ICO is doing something very unique  And as you know, the more it implementation is carried, the more people want it and the more likely it is that its value will go up when it comes out.

Verify whether or not an audit of the code has been performed

A well-written ICO will stand out as distinct from scams due to its high-quality code. The ICO (and your investment) is at a higher risk of being hacked if the code is full of bugs, which suggests that the development team behind it lacks the necessary experience and expertise.
Find out if an audit of the ICO’s code has been executed by reading the white paper. Hire a professional developer if you don’t have access to this data, and they can tell you if the code is any good. The quality of the code is usually a good indicator of whether or not an ICO is worthwhile.

Examine the History of the Company’s Founder

Pay close attention to the past record of the team’s creator while you do your due diligence. You may evaluate their prospects of success with this new project by looking at their past ICO launches. Their track record of success is indicative of their familiarity with the ICO market and the steps required to launch a coin.
Technical details aren’t the only component of an initial coin offering. Simply said, if the founders have had previous success, it shows that they have a firm grasp on the many factors that shape the ICO industry.
When considering an ICO investment, you should also think about the founder’s financial stability. It’s better to put money into an ICO if the entrepreneur has no need for further funds. That they are willing to go all the way with their ICO commitments. The founders of the project may be engaging in a “pump and dump” operation if there is evidence of underpaid liquidity at the time of launch.
The founder’s liquidity is typically detailed in the white paper or explained on the ICO project’s homepage.

Last but certainly not least, transparency

The whitepaper’s clarity in outlining the ICO’s many aspects is another important consideration. Fundraising amounts and project milestones should be made crystal clear in the whitepaper. When the amount is needed and its intended use are both made clear, investors get more faith in the ICO, which boosts its chances of being a success when it finally launches.
An ICO’s white paper’s security mechanisms should be described in detail. White papers can be harmful if they leave readers wondering about the level of protection offered. As has happened with other ICOs in the past, your coins could be stolen.
Additionally, make sure there is transparency about the founder’s and ICO advisors. This can help you determine if an ICO is a good financial move, Indicating that high-profile founders and advisors are prepared to put their names on the line for that ICO.

As the saying goes, “If something smells fishy, it probably is

You’ve perused the ICO’S website, seen the video, and researched the whitepaper, but you’re still left wondering what it’s all about.

A useful rule of thumb to employ when in doubt is indeed the “duck test”: “If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.” Often, there’s really nothing more to it than that.


Do your own investigation into rather than taking the word of strangers online. Check out the white paper, peruse the Medium posting, twitter, website, any social media and sign up for the official chats on Telegram and Discord. Learn about it in detail.

Remember that there is, however, no assurance of a project’s success even if all necessary requirements are met. Being cautious, however, makes it far simpler to avoid the majority of the fraudulent ICOs that are based on excitement and hype only and to spot frauds when they first emerge. If you can spot a scam before you fall for it, you’ll have a lot better chance of putting your money into a legitimate ICO.

Putting your capital’s safety first should be your primary investment target.


Hey, I'm a crypto lover and the chief editor at Cripto Exposed. I've been passionate about blockchain and cryptocurrency for years and am always looking for new ways to explore this exciting space. I'm committed to writing only the most up-to-date and meaningful stories related to crypto and blockchain-related trends. If you want to stay in the know on cryptocurrency, follow my pages! Let's continue the crypto revolution together. #StayCrypto

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