Advertise on the blog banners, articles, newsletter

Investments & Earnings / ICO / Статьи об ICO

ICO / Статьи об ICO 13-02-2019 5 678 0

In Which Areas Funds Are Raised With the Help of ICO Fraudulent ICO projects and how to recognize them

In the cryptocurrency world there are many criminal schemes: these include hacks, and phishing, and pumps and dumps. It also happens that a seemingly honest project fails for one reason or another, which also leads to the loss of colossal investor funds. And although the best minds of humanity work in the crypto industry, unfortunately, the mental efforts of some of them are directed not at developing the technologies of the future, but at deceiving hapless investors.

One of the most upsetting phenomena in the cryptocurrency world is outright fraudulent ICOs, falling victim to which is doubly unpleasant due to the admission of one's own naivety. Therefore, before investing you need to learn more about an ICO project and conduct its analysis. Next we will consider how exactly to evaluate an ICO project before investing, and recall the most well-known fraudulent ICOs that collected millions of dollars.

Large ICO scams are a relatively new phenomenon that can be attributed to the era of the explosive growth of Bitcoin's price and popularity. Early cryptocurrency users got used to super-profits too quickly, and the market filled with starry-eyed people without investment experience. Overconfidence and greed often lead to trouble.

Those who have long communicated on the Bitcointalk forum remember well how back in 2016 the obscure deCLOUDs project burst into the lives of forum members with promises of huge profit. At that time the project managed to collect more than 300 BTC, after which its “developer” disappeared as suddenly as he had appeared. Only after the fact did investors discover with surprise that the technical side of the project was described completely vaguely, and the photos in which the founder proudly posed with leading figures of the industry turned out to be photoshopped.

After deCLOUDs came followers and other trailblazers — EBitz, ZCrypt and Opair, rumored to have been created by one and the same group of talented people. Converted to the current rate, all these fraudsters could be millionaires — and all thanks to bare charisma and shoddy presentations.

In just two years the market has changed and grown significantly. The hype of 2017 attracted to the crypto market many inexperienced players who had not yet learned from bitter experience. Despite the growth in the number of cryptocurrency fraudsters, there was always enough of an audience for them. Considering the average life cycle of blockchain projects, some experts even claim that the overwhelming majority of projects are stillborn.

PinCoin and iFan

Perhaps the largest ICO scam in history so far unfolded in early 2018. The company Modern Tech, registered in Vietnam, released two tokens onto the market at once (PinCoin and iFan), which together lightened the pockets of more than 30 thousand investors by $660 million.

iFan was promoted as a social network where popular content creators can monetize it and interact with fans. Pincoin was positioned as an investment coin that generates profit. Both tokens were created on the basis of the ERC20 standard, and the developers even bothered to create some parts of the platform, among which was an auction and a p2p trading platform. The ICO campaign initially used elements of the MLM model, and this should have served as a red flag for seasoned investors.

The team stopped showing signs of life in March. Only in April did a belated reaction from the community flare up. The scam turned out to be so global that it even came to street protests in Ho Chi Minh City, which, naturally, ended with nothing constructive.

CentraTech

The ICO of this project clearly shows the public that a person who can box professionally is not necessarily equally well-versed in fintech. The well-known boxer Floyd Mayweather became the face of the PR campaign for the CentraTech project, which managed to collect investments amounting to $32 million. However, immediately after the token sale the SEC accused the platform's founders of fraud, and now they are serving prison terms.

The platform's token was also created according to the ERC-20 standard and its declared functionality included integration with Visa and MasterCard cards, which made it possible to easily convert cryptocurrency into fiat and vice versa. But, as it turned out as a result of the SEC investigation, the company lied about the existence of partnerships with key financial institutions.

“We believe that Centra attracted investors with the prospects of new digital technologies, but in its marketing campaign lied about the existence of partnership agreements with the relevant companies”, — stated SEC enforcement division director Stephanie Avakian.
One can only marvel at the audacity of the fraudsters and the indiscriminateness of the public, given that Floyd was not the first boxer involved in a dishonest token sale.

Plexcoin

This Canadian exit scam is also notable for the fact that its activity was stopped by the SEC and one of the organizers suffered criminal punishment. Unfortunately, before that the project conned trusting investors out of $15 million.

Plexcoin's ambitious manifesto prophesied for the coin the place of a “successor to the outdated Bitcoin”. The enterprising founder of the project, Dominic Lacroix, promised users a 13-fold profit on their investments, which in itself could have suggested a financial pyramid, not to mention that Lacroix had previously already been spotted in fraud with a microloan company. Various crypto experts tried to whitewash his name, who, as it turned out later, were fake.

It must be said that Lacroix got off lightly: a few months in prison and a small (relative to the stolen funds) fine of $100 thousand.

Bitconnect

It is impossible to overlook Bitconnect on this list — the gold standard among cryptocurrency MLMs. This project managed to exist for years. During this time Bitconnect was repeatedly accused of fraud, and its marketing campaigns became a gold mine for crypto memes. In August 2018 the SEC mentioned it in its report as a classic example of a financial pyramid.

The idea of the project was that investors “lent” cryptocurrency to the platform for a certain time, and were subsequently supposed to receive their deposits with a 0.2% markup. There was also a multi-level referral program, as a result of which the internet was simply teeming with users independently seeking out victims for the insatiable Moloch.

In less than a year, driven by demand and hype, the coin's rate soared from a few cents to $400. The project used this growth to pay interest to participants. But as soon as the rate's growth wavered, the pyramid collapsed with a crash under its own weight, leaving investors with a depreciated token and an absence of serious prospects for the return of their deposits.

Honorable mentions

Among the many similar scams one can single out honorable laureates that, although they did not collect tens of millions, acted with particular flair.

The Prodeum project distinguished itself with a brilliant exit scam. Having collected by some estimates up to $6 million, the developer immediately deleted all its virtual traces, and from the site left only a snow-white home page with the meaningful message “Penis”.

No less telling turned out to be the exit scam by Benebit. This project returned to the origins of obvious deception and bad photoshop, showing that the market still does not stand out for maturity and has not learned the lesson, as some enthusiasts prefer to think. The full depth of the problem was revealed at the moment when the community's homegrown detectives discovered that the team's photos were stolen from the website of a British school. But it was already too late.

Finally, the absurdity of the situation was underscored by PonziCoin (Ponzi scheme — the English term for a financial pyramid). If the name itself was not enough of a hint, then the project's whitepaper directly quoted the SEC's warning regarding financial pyramids. The coin's creator later admitted that his project was a joke, but the desire of a certain number of investors to take part in it turned out to be quite serious. Fortunately, the investors got their money back. As one observer noted, “The amount reached 240 ETH. Congratulations, losers.”

How can an investor avoid getting hooked by a fraudulent ICO project?

Of course, the actions of swindlers cast a shadow over the entire crypto industry, but this does not diminish the real potential of blockchain and cryptocurrencies. In most cases, participation in token sales is an honest business and a real opportunity to earn while supporting the development of progressive technologies.

But how do you recognize a fraudster before he has taken hold of your money? Well-known crypto investors have shared their experience many times and have even compiled checklists.

They all advise adhering to the following rules:
- Carefully and critically read through the project's whitepaper.
- Genuinely study the team, its previous projects, find profiles on LinkedIn and make sure there is experience and reputation.
- Verify that the partners and advisers listed on the site know about the existence of the project and are real people with a good reputation and the relevant professional skills.
- Pay attention to the existence of a physical office at the specified address and other legal matters.
- Do not get involved with projects that have no real product even at the early stages of development.
- All of the above-mentioned projects fell under suspicion on several points of this checklist at once.

Additional ways to cushion the fall have long existed, which can be conditionally divided into centralized and decentralized. The centralized ones include various ICO ratings, listings, personal blogs of well-known crypto investors and other media resources.

Decentralized, that is, inherently independent advisers are platforms that use the so-called “wisdom of the crowd”. These include the well-known Augur, Gnosis or the ICO-specialized Wings. They work on the principle of prediction markets, where large masses of users (you can't bribe everyone!) place bets on the outcome of one or another event, vouching for their opinion with their wallet. To date, for investors this is one of the most reliable ways not to be left empty-handed.

For the sake of safety, both novice and experienced investors should use all available means of obtaining information about projects coming out for an ICO, but remember that there are no zero risks in the crypto industry.

In Which Areas Funds Are Raised With the Help of ICO Fraudulent ICO projects and how to recognize them