ICO scam is a fraud disguised as a fundraiser for a new cryptocurrency project. The promoters of the scheme convince people to invest money (usually other cryptocurrencies, such as Bitcoin or Ethereum) in exchange for new digital tokens, which are supposed to be of high value in the future. In reality, the project doesn’t exist or has no real intention of developing an ICO, and the aim is just to steal investors’ money.
How does the ICO Scam work?
The mechanism of such a scam is based on exploiting the enthusiasm and lack of knowledge of some investors in the cryptocurrency market:
- Unrealistic promises: Scammers create an attractive story about a revolutionary project that can bring early investors fabulous returns.
- A fake or plagiarized “whitepaper”: In the case of an ICO scam, this document is either non-existent or copied from other projects.
- Anonymous or fake team: Often team members are presented with fake names, stock photos or made-up LinkedIn profiles. There is no real verification of their identity or experience. Even if real names appear, sometimes they may be people who do not know they are associated with the project (stolen identity).
- Aggressive and false marketing: the scheme is heavily promoted on social networks, crypto forums and through paid “influencers” (who may or may not be aware of the fraud). A sense of urgency and exclusivity is created (“supply is limited!”, “don’t miss this once-in-a-lifetime opportunity!”). You can read more on this topic in our article: “The cryptocurrency market: the $3 trillion industry that almost nobody understands”.
- Lack of a working product: the project never has a beta product, a prototype or even verifiable source code. Everything remains at the stage of promises and concepts.
- Rapid fundraising: Once enough interest has been generated, scammers quickly collect funds from investors in exchange for promised tokens.
- Rug Pull: After raising a significant amount of money, the team simply disappears. The website shuts down, social media accounts are deleted, and the tokens sold become virtually worthless, as there is no real project behind them and no plan to list them on cryptocurrency exchanges. This tactic is also known as “rug pull”.
ICO Scam Warning Signs:
- Promises of guaranteed profits: Any crypto project that promises guaranteed returns or extremely high profits is a major red flag. The crypto market is volatile and risky.
- Lack of a product or prototype: If there is nothing tangible, no code, no demonstration of the technology, it’s a bad sign.
- Anonymous or shady team: Team transparency is crucial. If you can’t verify who those people are, be skeptical.
- Vague, poor or copied whitepaper: A poor-quality whitepaper, lacking clear technical details or full of mistakes, indicates a lack of professionalism or fraudulent intent.
- No legal or regulatory information: Most legitimate projects strive to comply with laws and regulations. The lack of these details is a warning sign.
- Constant pressure to invest quickly: Aggressive marketing tactics that pressure you to invest immediately, without having time to research.
- Fake or artificial community: Communication channels (Telegram, Discord) are full of spammy messages, unwarranted enthusiasm, and no technical discussions or serious questions.
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