How to Identify a Phony ICO

Every new week we hear of yet another new cryptocurrency being launched. Launching of cryptocurrencies and Initial Coin Offerings (ICOs) go hand in hand – as new crypto projects seek financing for the project. Due to their novel nature – in terms of technology and market behavior, cryptocurrencies are a very attractive investment for investors. 

Thus, any new and flashy crypto project is likely to attract a horde of both experienced and novice traders. Scammers know this, which is why phony projects have been able to successfully con millions of dollars from oblivious investors.


How do you stay alert? How do you avoid sinking your precious savings in a fraudulent ICO? The crypto space is incredibly dynamic, and even the savviest investor can find themselves sideswiped pretty fast. That doesn’t mean you can’t have some antennae out to help you detect crypto ICO fraud. 

This piece arms you with what you need to know so you won’t fall victim to the ICO scam clothed in grand promises and irresistible investment returns.

i) Find Out About the Team

Nothing will familiarize you with an ICO better than the team behind it. To determine whether an ICO is fake or not, check who the developer and the administrative team are. If it’s a legit project, these people will not only be out in the open but also have some history in a relevant field such as cryptocurrency, finance, or technology. If the team has a somewhat questionable history with these fields, you might want to get out.

Other scammers will name drop trusted names within the industry, claiming to have their backing for the project. To determine the veracity of this, a quick Google search is all you need. Also, check whether the people behind the project have mentioned it in their verified social media pages. If the search turns up nothing, you should take that as a red flag. And even if they mention the project and their social media activity generally looks dubious – like no interaction with followers that should also be a big, flashing, red sign.

ii) Study the Whitepaper

The foundation of any ICO is its whitepaper. A white paper should contain the background, motivation, goals, strategy, potential challenges, and a roadmap for the implementation of any blockchain or crypto project. A white paper can tell you so much. Read it thoroughly. Check to see the sources referenced in the paper. Does it have financial models that have been explored by other experts before? Does it address legal concerns? Does it talk about tools like SWOT analysis? Does it have a timeline for implementation?

These guidelines are for when a potential blockchain-based project has a white paper, to begin with. If it doesn’t have one, then you shouldn’t even think twice about it. Note, though, that it’s still possible for a fake ICO to produce a very convincing white paper. In that case, you need to check if it answers all your questions. What sets it apart? How does it aim to thrive in the already competitive blockchain space? How does it intend to achieve its goals? Finally, even if the white paper ticks all your boxes, always rely on your gut instinct. If too much as the littlest thing sets you off the wrong way, perhaps something is wrong.

iii) Look at the Token Sale

ICOs usually depend on crowd sales to fund projects. Know this: the crowdfunding process should be completely transparent. A legitimate ICO will make public sales figures so that potential investors can see and track them easily over time.

If a company is making it difficult for the public to track the progress of its crowd sale, this signifies a lack of honesty and perhaps underhanded dealings. Watch out for excuses, such as protecting the privacy of individual contributors. This is just a ploy to hide the progress of the ICO and prevent people from seeing how much money has been raised and how much time is remaining. Sometimes, scam ICOs will use this trick to generate a sense of urgency and fear of missing out (FOMO) in potential investors – so that they can collect more money.

iv) Is The Project Feasible?

This may sound obvious, but blockchain projects poised for success are those that have a solid and feasible set of goals. Crypto and blockchain are already wildly competitive spaces. A new project should be able to demonstrate what difference it brings and how it plans to outdo competitors. Many projects started out with pomp and circumstance, only to sputter away after the center couldn’t hold any longer. A project should sell a compelling concept that sustains interest in the long haul. 

The issue of transparency also arises. Projects that have an outstanding proposal are more likely to put themselves in the open as much as possible. If a project regularly updates the community with achieved milestones, that means it is legitimate and feasible.

v) Caution Is Your Friend

The crypto space offers opportunities galore for those who have done their research and can read the fine print before jumping into any investment. People have made millions out of this industry. Due to this promise, it is very tempting to want to jump into the next hot new project. And scammers know this, which is why they will not hesitate to flash seemingly irresistible projects in the eyes of naive investors.

Be wary of projects that sound too good to be true. Scrutinize new projects up to the last detail. Watch out for any single piece of important information that seems to be missing. Also, check for outside sources to establish the credential of any projects. 

Check if it has supporting communities on social media and other online forums. Remember, a project doesn’t need to be fake, so you can lose money; it can also be just poorly designed or too weak to succeed.

vi) Beware of Improbable Promises

Investing was never a surefire endeavor – not in stocks, not in commodities, and certainly not in blockchain projects. If a project comes out promising nothing but sky-high results, then it’s probably a scam.

 If someone is promising you a massive ROI before anything even kicks off, or guaranteeing you impressive profits, you need to be very suspicious.

Also, watch out for a project creator who tells you they already raised millions of dollars and that you need to join in now. It is an attempt to convince you to shell out your money, so you don’t miss out on the “golden opportunity.”

vii) Check Under The Hood

Some phony projects are just peddling vaporware. Which is why you need to confirm the software of any new crypto project that you want to invest in.

Check GitHub. Is the product listed on there? Also, is there a community where you can ask questions about the functionality and features of the crypto? You can even ask the developers to show you a prototype.

viii) How Are They Handling Your Money?

The way a project is handling your contributions can reveal a lot. For example, your funds should not be sent directly to an exchange site like, say, Binance. This would mean the creators can automatically cash out the money – without any accountability at all.

Also, how are they vetting contribution sources? Are they following anti-money laundering (AML) procedures? Are they adhering to know your customer (KYC) regulations? 

If the project team is not complying with best practices, it means they are operating outside of the law. And if they’re operating outside of the law, then you’re not supposed to be giving them your money.

Final Thoughts

The cryptocurrency market is fast-paced and exciting. It can make you pretty handsome returns, but you can also lose your savings in a heartbeat. This isn’t to deter you from trying your hand in the market. It’s a call to caution – more measured steps and due diligence before you fork out your cash for any investment. By following these guidelines, you should be able to gauge if that flashy ICO is worth your time and money.


By Edith M.

Edith is an investment writer, trader, and personal finance coach specializing in investments advice around the fintech niche. Her fields of expertise include stocks, commodities, forex, indices, bonds, and cryptocurrency investments.

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