During the 2017–2018 cryptocurrency boom, Initial Coin Offerings or ICOs were all the rage for startup fundraising. Offered as revolutionary investment chances into blockchain technology, the grounds offered to the early investors enormous sums of profit in return. The lure soon entered the fraudulent circles. In absorption of masses of money and retreating, many ICO projects disappeared, thus leaving the reward holders with valueless tokens. The aftershock of these scams is still felt today, with ICO scams remaining an big headache for regulators and equally unsuspecting investors.
How ICOs Work
The ICO replicates an IPO to an extent, marketed and sold in exchange for investment, but instead of shares of a company, investors receive digital tokens. These tokens represent either the possibility to use a service or voting rights, or, in theory, a certain stake in the success of the project. A genuine ICO should provide:
- A whitepaper stating the technology and objectives of the project
- A pitchbook on the proposed uses of funds
- Information about the team, including their credentials and experience
Unfortunately, many fraudulent ICOs skip these critical steps, making it difficult for investors to verify their legitimacy.
Common Red Flags of ICO Scams
1. Lack of Regulation
Most ICO scams avoid registering with the SEC or any financial authority, giving away that very opportunity for oversight, hence leaving the investor unprotected should something go wrong.
2. The Fake or Anonymous Team
In a genuine project, the team is transparent, verifiable, and experienced in the industry. Scam ICOs present falsely presented team profiles or use stock pictures to conceal real photos.
3. Vague or Copycat Whitepapers
A whitepaper is supposed to describe the technical basis of a project. Scam ICOs would be publishing vague, plagiarized, or overly complicated documents, which would give the illusion of legitimacy but do not present any real detail.
4. Unrealistic Promises
These projects promise enormous returns from extremely rapid action. Such promises cannot be fulfilled in the highly volatile crypto world.
Role of Regulators
The SEC has taken down many ICOs and has charged many ICO issuers with selling unregistered securities. Investors can confirm whether an ICO has followed disclosure rules by using the SEC’s EDGAR database. But many, if not most, scams are run from other countries where U.S. jurisdiction cannot be enforced (a particularly prevalent type of ICO scam in 2017 and 2018), and all of this just means investors must be extra diligent and look for guidance from cybersecurity near me if they need assistance in their own due diligence.
Safe and Sound
You can avoid ICO scams by doing the following:
- Conduct thorough project research.
- Check credentials.
- Search for regulatory filings.
- Do not invest in projects that promise you guaranteed returns.
- Ask for independent reviews and third-party evaluations.
- When in doubt, contact a cybercrime expert for guidance
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