Spotting Scammy ICOs Before Parting With Crypto Coins In Crowdfunding

Crowdfunding has become a popular means by which businesses get funds to start a business. However, the rising popularity of bitcoins has led to a new method of crowdfunding called Initial Coin Offering (ICO) that is different to the standard financial system that the market is used to.

What is an ICO?

Before going into the details of how to identify ICO scams, it is first important to understand the concept of an ICO. It is basically the crowdfunding that we all know but the difference is that ICOs are carried out through cryptocurrency. It is currently becoming very popular because it presents a new method for individuals and companies to fund their projects.

ICOs are advantageous because they have an easier and more efficient process compared to the traditional methods of crowdfunding. ICOs last about one or two weeks and sometimes even longer. During that duration, individuals and companies get to purchase tokens issued through the crowdfunding in exchange for cryptocurrencies such as ethereum or bitcoin.

Fake ICOs

ICOs have been growing more popular especially with the surge of major digital currencies such as Bitcoin. This highlights the fact that they are more efficient and easy to use for crowdfunding purposes. Numerous ICOs were launched about a week ago and this demonstrates just how popular ICOs have become. However, this has also led to new threats such as scams despite the allegedly secure nature of blockchain technology.

Generous bonuses

Investors view very new ICO that becomes available as a potential goldmine which means it could be the next big thing. This is because some major firms such as Uber or Airbnb got to where thy currently are through crowdfunding. For this reason, most investors are after the best bonuses that they can get through crowdfunding projects.

Most of the bonuses issued through ICOs are often based on the total investment and so investors sometimes pursue bonuses that are as high as 90 percent. These bonuses are thus an incentive for investors and so some scammers want to take advantage of this by offering generous bonuses. This is one of the tell-tale signs that an ICO could be a scam. Investors should thus avoid deals that seem too good to be true.

Adequate background checks

Scammers are often clever and often times end up being as good as the real deal. This means it is difficult to tell the true ones from the fake ones. It is thus important to employ other security measures. One of those measures should include an elaborate background check of the founders of the ICO to determine whether they have a good track record.

Legitimate founders will most likely have their footprint in other key areas thus meaning they can be trusted. It would not be a good idea to invest in a crowdfunding project whose founders have no prior experience in the field that they are venturing.

Disclaimer: This article should not be taken as, and is not intended to provide, investment advice. Please conduct your own thorough research before investing in any cryptocurrency.

Image courtesy of Rocio Lara via Flickr