How to Detect Scams in ICOs

5 tips to avoid losing money when getting into token offerings

People often confuse attributes of objects with attributes of people who use those objects.

For example: although you can harm someone with a knife, it can’t be considered, per se, as something good or bad in the ethical sense. The same knife that can be used to harm people and animals can also be used to cut a fruit or to perform a surgical intervention to help save someone’s life.

So being good or being bad is not an attribute of things but rather an atribute of actions (in the moral sense). And only people perform actions.

The ICO industry has been a target of attacks made by companies such as Google, Facebook, Twitter, etc. They say that some ICOs have been used to steal money from people. Ergo, they wouldn’t be allowing ICOs advertising on the respective platforms.

They have no problem in promoting businesses guaranteeing return rates of 3% per day — a.k.a. Ponzi Schemes — , but god forbid allowing someone to advertise the selling of utility tokens! Or have also no problem with selling information they own to companies whose purpose is to influence elections, therefore ruling the destiny (liberty, property, etc.) of people’s lifes. But hey: no ICOs, please.

As in any business, there is good and bad people running ICOs. It is the manifestation of a free market in its almost pure form, so people investing in ICOs should educate themselfs on the risks and characteristics of the respective businesses.

The idea of this small article is to lay 5 simple tips that will help people evaluate the seriousness of projects running ICOs, therefore detecting dangerous situations and avoid losing money with them.

1. Investigate the people involved in the project

“John Feynman is the CEO of STB Blockchain. He has a masters in engeneering issued by Fancy University and has been working with automation in companies such as Big Car Industry, Big Space Industry and Big Soda Industry”.

The first thing is to check all people involved in the project to see if they are real and if they really have performed what they claim to have performed.

If the guy is involved in the corporate world, he would probably have an old Linkedin account with a lot of real people in it, for example. Or a Facebook account with real life interactions, not botsy stuff.

The trick is to look for proofs of identity and real life presence: videos of real life interactions, articles published in respected journals and media, mentions by real life people and/or information vehicles, lectures, classes or anything that would confirm someone’s identity.

Look at the degrees, the companies and everything else to see if there is any appearence of made up stuff.

The idea is simple: to check if someone has something to lose by performing a scam.

There is also a let’s-put-a-lot-of-people-in-the-team-to-look-big situation. The project don’t want to seem small, so they ask for the building janitor, the lady who serves coffee and tons of people to put their faces in the site and whitepaper to fill some space.

This is not per se an indication of scam if you can check the identity of those people and the credentials of the leaders of the project. However, this is a bad indication of the character of the people asking for your crypto to finance their ideas.

In case of any doubt, the solution is pretty straight forward: do not invest.

2. Know what you are buying

When me and Roger, Iconic’s chief of marketing, were studying how ICOs really worked, we spent a full afternoon with 0.2 Ether in an account to choose an ICO to invest in.

We ran several pages of an ICO listing platform and opened each one of the projects to try to understand what they were doing, proposing and planning to do. For our surprise, we could not understand the concept of more than 60% of the projects we were analyzing.

We could only find statements such as:

“STB Blockchain will revolutionize the market of bananas by adding multi-layered decentralized controls on the main aspects of the chain of development and production, guaranteeing a healthier market and sustainable growth of income.”

Page after page we saw ourselfs trying to understand what those projects were willing to do with no success.

Maybe we are stupid and couldn’t understand the greatness of the ideas? Maybe. Or maybe they were trying to add blockchain to something just to collect some ether and bitcoin. How can we know?

The fact is that even if I’m stupid to the point of being incapable of understanding the projects in their deepness and magnitude, my behaviour should be one and just one: not buying what I can’t understand.

Good projects are usually simple in their conception, even though they could be very complex in depth. Therefore, one should be able to explain them easily and shortly: blockchain to track the autenticity of goods (wines, diamonds, etc.); blockchain to predict the outcome of future events; an ecosystem to create a complete and safe environment for ICOs to be realized (thank god I could explain Iconic easily…).

I’m not saying that complex ideas are usually scams. I’m just saying that there is no point buying things that one do not understand. It would be the equivalent of someone going to a shop, looking at the fancier eletronic device there and buying just because it seemed complex enough, regardless of its utility in general or for the buyier.

Read the whitepaper carefully and look for a good and detailed explanation of the project. Look at consistency, check the information sources. And then think: does it make sense at all?

If it does, then it is time to evaluate the economic model of the token.

3. Evaluate the economic model of the token

When you are buying stocks or tokens offering equity, your main concern is about the business per se. If the business has a bright future, then you’ll be entitled to safe and sound profits having for you a chunk of the company that appreciates year after year.

But utility tokens are different: they do not give you rights over the company but rather are part of specific economic models that can vary from voting/betting rights to money with a specific use. And if you consider the tokens you are buying an investment, you should try to understand how would it behave valuewise in the course of time.

A token can have or not fixed supply; it can be inflationary or deflationary; it can have a ballast or not; it can have or not fixed relationship with other goods, coins or fiat currencies, etc.

In connection with the uses of a token, these are very important aspects that should be fully understood by the inverstor prior to buying anything.

People often worry about the wrong things when buying tokens: “When are they going to be delivered?”, “In which exchanges the token will be listed?”, “Does it have its own blockchain?” etc.

An exchange, for example, is just a market where people interested in something can buy it from people wanting to sell it. It is people with buying orders that determine the price of a token and not the exchange in which it is listed.

It is a smart economic model that provides tokens with a sound future. Not having its own blockchain — which could be a catastrophe by many reasons — or being listed in 15 exchanges from start.

Finally, take a look at the token distribution and power of emission. Those are indications of the allocation of capacity to change market prices, so they both should be looked very carefully: the more centralized the power the more exposed the buyier.

4. Test the transparency of the project

When Iconic was having its Pre-ICO, people used to ask us how was it going, because we did not have a progression bar showing how much we’ve raised.

Was it a problem? Well, we did not think so, as we only received Ether in our Pre-ICO and our wallet was public, so anyone could easily see how much we had raised!

Yeah, ok: a progression bar is very cool — if well designed, of course. But even better then seeing a cool bar indicating what people want you to see is having the oportunity to see and check for yourself.

The problem of carrying ICOs with a lot of funding sources — 60+ types of crypto, fiat currencies, beans, rice, and everything else — is that it is impossible to be 100% transparent. Therefore, one can never be sure that the raised total showed in the pretty bar equals how much the project actually raised.

But transparency is not only about fundraising, but a matter of conduct: Where is the project based? Is there a company registered? Can I see for myself the names of the company’s partners? Is there any legal documents regarding the offer?

Transparency goes as far as to cover the source code of the token: if the source is not available, how can one really be sure that the promised economic aspects of the token are real?

Transparency is not an absolute measure. Therefore we can talk about being more or less transparent. The idea, however, is pretty simple: the more transparency the project has, the safer it probably is for the token buyiers.

5. Promises and guarantees

“The value of the token will go up steadily because it is so great”

Really? Promising returns and steady growth?

To promise economic results is one of the best indications that a project is a scam.


Because no one can promise anything in markets. Even sovereign states, printing money like hell and having armies to force people on doing what they want, can’t promise anything regarding markets and economy.

People can only promise you hard work and honesty: the process, never the results. And this should be the ultimate measure of projects: how they do things rather then what they really achieve. Sometimes the results can come from randomness in spite of stupidity and awful work and ideas. And that is simply life.

It is different with guarantees. Guarantees can be measured objectively and actually ensured. One can carry an ICO with an escrow, a person or entity trusted by the investor to manage the raised resources to make sure the people involved in the project will behave as a condition to have access to the funds; one can take out insurance against misfortunes or certain types of risks; etc.

Guarantees, provided that they have legal value, are indeed important aspects of any ICO: the more (good) guarantees they offer the safer the investment.

A good guaranteed project could even compensate for some doubt regarding the curriculum of the team. As long as there is certainty about the guarantees offered, they can be a good indicator to be considered when buying tokens.

Final thoughts

This analysis should be carried out objectively, by collection of evidence and deductive process at the same time.

The scam hunting, however, is a matter of finding indicators and lack of indicators in matters where they should be present.

Although it can be conducted in a similar way to the positive evaluation of projects, where matters are graded and balanced afterwards, scam hunting is more like an assessment of the nature of what is being offered and its explicit or implicit dangers.

At the same time, previsouly setting the criteria to separate good and bad projects (e.g. never buying tokens from a project where every involved person can’t be verified, never buying tokens from a project that doesn’t publish the source of its tokens, etc) prevents us from biased or emotional decision making, which is always important when dealing with matters that should be carried out rationally.

That being said: whenever that awkwardness feeling strikes, a feeling that something is wrong although we cannot explain exactly what, we should just not buy.

Investing is not only about what we do, but also about what we don’t do.

Jonathan Doering Darcie