Launching an ICO – Forex Academy

According to a report by Chainalysis, crypto Ponzi schemes are now the biggest crypto crime. In 2019, Ponzi schemes accounted for 92% of proceedings from crypto crimes.

Ponzi schemes are financial fraud schemes that trick unwitting people into investing money in a non-existent enterprise. Ponzi schemers sustain the fraud but paying out profits to initial investors using the money that new investors have pumped into the project. Ponzi schemes are able to sustain this lie for a while – but the facade starts cracking when they can no longer attract new investors, and old investors start getting concerned.

Ponzi schemers are now moving into the cryptocurrency space to try their luck. This is because many people are still unfamiliar with cryptocurrency or how the technology really works, rendering them vulnerable to any investment lie mixed with some truths. There is also the sentiment about cryptocurrency being a “get-rich-quick” investment. The crypto space also has few checks and balances – thanks to its decentralized and deregulated nature – making it easy to defraud unsuspecting investors and evade the law – even if just for a while.

OneCoin: the Greatest Crypto Ponzi scheme of All Time

OneCoin is perhaps the cryptocurrency Ponzi scheme that takes the crown. US prosecutors have concluded that the scheme raked in approximately $4 billion from investors around the globe. From Palestine to the UK to Uganda to India to the US, people from all over the world were duped into sinking money into “the next Bitcoin.”

In China alone, authorities recovered $267.5 million and prosecuted over 90 people in connection with the scheme.

Dr. Ruja Ignatova, the mastermind behind the scheme, has been missing since 2017. The last that was heard of her is that she boarded a plane from Sofia to Athens never to be seen or heard from again.

OneCoin was launched by Ignatova, a Bulgarian, who according to her LinkedIn profile, is an Oxford graduate and a former McKinsey employee.

On the surface, you couldn’t have suspected anything was amiss. After all, OneCoin supposedly worked like any other cryptocurrency that generated new coins via mining and could be used to facilitate global payments. Also, it came with a safe and secure wallet, and it had a “total supply of 120 billion” coins.

Network participants were required to buy educational materials that included cryptocurrencies, trading, and trading analysis, investments, and so on.

Participants could also receive discounted packages and referral rewards if they got more users to join the network.

Ostensibly, OneCoin was a “centralized network” where the team “took care of all technical aspects.” In truth, however, OneCoins were engineered by the scammers who programmed it from $0.56 to around $ 33.68.

Also, it was later debunked that OneCoin never really had a blockchain, with police saying that it lacked “a true blockchain that is public and verifiable.”

The Launch of Onecoin

In June of 2016, Dr. Ruja appeared on stage at a flashy event on the Wembley Stadium in London, dressed resplendently in a ball gown complete with long earrings. With superlative after superlative, she described OneCoin as the next big thing, including that OneCoin would be “the biggest out there,” and it would “write history.” She told hundreds (or perhaps thousands) of screaming fans that OneCoin was the “most transparent, most powerful, and most legal” cryptocurrency. She concluded with this classic: “In two years, nobody will speak about bitcoin anymore!”

Despite OneCoin allegedly growing rapidly and stories of success, investors were starting to get concerned. A long-touted crypto exchange that would let users exchange one coin into Fiat was being constantly postponed. At an event in Lisbon where organizers would allay investor concerns, Dr. Ruja was a no-show.

FBI records indicate that she flew on a Ryanair flight from Sofia to Athens on October 25, 2016, and that is the last that investigators know for now. A BBC article surmises that she might be living in Frankfurt under a fake identity.

She has been charged in absentia with securities and wire fraud and money laundering. Her brother, Konstantin Ignatov, has been convicted for money laundering and fraud. A US lawyer Mark Scott has also been convicted for money laundering in connection with the OneCoin scam.

How to Smell a Cryptocurrency Ponzi scheme From Miles Away

The OneCoin story is a juicy one, but in there lies very important lessons for every aspiring cryptocurrency investor. Investors who put money into the project will likely never be able to recover it. Even though authorities might successfully recoup some of the money, the probability that individual investors around the world will be fully compensated is very low. Their money’s gone, just like that.

So how can you protect yourself from these kinds of scams? After all, such fraudsters are not going anywhere; in fact, they are constantly reinventing the game.

Always look out for these red lights:

i) Massive and Consistent Returns

This is perhaps the most obvious tell-tale sign of a Ponzi scheme. No investment can consistently return massive profits almost without risk. So when you see a project bragging about an impossibly high rate of returns, think twice. The general rule is: if it is too good to be true, it probably is.

ii) Returns Dependent on Referrals

If an investment project relies too much on referrals, then that is a red alert. Referral and commissions are the main routes through which participants will earn in most Ponzi schemes. If you see this kind of a model in any enterprise, it means the business itself is unprofitable, and sooner or later, it will cave in.

iii) Unclear Ownership

Who owns the company? Are the founders in the shadows, or is information about the company inconsistent? If you know what to look for, a simple Google search should be able to reveal any shadiness.

iv) Need To Join For More Information

To escape the law, many websites of crypto schemes will put up the facade of a legitimate business such as a wallet service, a cloud mining platform, etc. Then they will tell you that to access the investment portion, you need to sign up first. This should set off your alarm bells.

v) Closed-source or Non-Public Blockchain

The tradition of cryptocurrencies is to exist in the open. But scam coins will usually hide their source code such that others in the development space cannot review it. Also, their blockchain is not up for public participation.

Final Thoughts

As you can see, crypto Ponzi schemes are well and alive. Fraudsters are rushing in to cash in on the allure that cryptocurrencies hold, and if you’re not careful, it’s easy to get roiled in a Ponzi scheme and lose your savings in a flash. These nuggets should help protect you from falling victim to a crypto Ponzi scheme.

For the last three years, Initial Coin Offerings (ICOs) have been compared to the dot-com bubble of the early 2000s. The two are much alike in that they led to significant loss of investors’ money. The only difference being that ICOs caused an 85% drop in the crypto market cap, which is steeper than the dot-com’s bubble – 78% crash.

Well, the ICO bubble may have popped as recent data suggests, but there are valuable lessons to be drawn from its failure. These lessons can be used to form the basis of what it takes to launch a successful ICO despite the prevailing skepticism around such projects.

How to launch a successful ICo

i) Formulate a Sound Business Model

Similar to traditional businesses, most ICO projects fail due to the lack of a strategic business plan. As such, ICO investors are willing to invest in a project that has a sound business model with a concrete idea of the product or solution the project offers to the market. To achieve this, you need to objectively study the market, know your audience, and weigh your project’s contribution to the crypto community.

Once you have all the relevant data, it is always recommended to write a whitepaper for the investors to review. Essentially, a whitepaper is a comprehensive description of your entire project and its goals. Be sure to also include crucial details such as development strategies, legal issues, and available resources. Sure, a well-crafted whitepaper isn’t a guarantee of success. But a poorly written whitepaper with an impractical approach to achieving the project’s goals will certainly turn investors away.

ii) Create Value for Your Token

Ideally, an ICO campaign will launch its own tokens that give investors access to the service or product set to be launched. If your token is to gain value, it will need to be in high market demand to attract more investors. Note that demand can be created only if your business model offers better solutions than your competitors. Besides, there are numerous project offerings in the market, so you have to make yours stand out.

Provided you have a solid business plan, there are two main approaches to increasing the value of your token. The first is designing a token distribution plan, and the other one is deciding on the exact number of tokens to be issued. To start with, the token distribution plan is done through private sales pre-sales or crowd sales. Private sales are closed ICO sales targeting high profile investors and professional investors. The idea here is to raise a significant amount of funds and leverage the influence of wealthy investors to gain the attention of others during the public sale.

Pre-sales are usually held in preparation for the main public sale. They are usually done to raise awareness of the token among the general public. The crowd sale targets investors, including those with limited amounts of investment.

In each stage of the token sale, decide in advance how many tokens will be issued in total.

You should also create room for issuance of additional tokens just to maintain market equilibrium.

iii) Build Your Team

Much of an ICO’s success depends on the team behind the project. From the marketing team, product developers, engineers, to the initial investors; they all need to be in sync with the objectives of your ICO project. It is also wise to include a lawyer in your core team to help you streamline the legal process of launching the ICO. Currently, there aren’t any lawyers specializing in crypto space, but an experienced lawyer in corporate formation can serve you just right.

Other members of your team, such as financial experts and developers, should have a good reputation in the blockchain industry. This goes a long way into giving your project the credibility it deserves to win reliable investors. A good team should consist of members who can complement each other’s skillset and even bring like-minded professionals on board.

You might also consider having well-known advisers and promoters in alliance with your team. Although this doesn’t always translate to success, these individuals will help vouch for your project.

Keep in mind that a team doesn’t entail those tied directly to the project only. Your target customers also have a place in your team. Advertising might win you some customers, but it’s an expensive approach considering that not everyone is interested in ICOs. A good place to start is by interacting with your customer base is through established online crypto communities such as Bitcointalk, Steemit, and Reddit. You can also work closely with YouTubers specializing in cryptocurrency. This way, once you start your marketing campaign, the audience will already be familiar with your offering and be likely to be swayed into investing.

iv) Build an Online Presence

Having an online presence is not only a viable marketing tool but also a good way to give your project a touch of legitimacy.

You can start by creating a website that showcases the necessary details of your project. As such, it makes sense to post an online whitepaper of your project on the website. Most importantly, remember to create a ‘team’ section on your web where all the project stakeholders appear. This section should be detailed, explaining the role of each team member, including their previous work and the milestones they have achieved. Be sure to include a passport size picture of each member above their profile.

You also need to know that only a handful of investors read the whitepaper to the very last page. For this reason, it is a good idea to have a ‘roadmap’ section on your website to concisely outline realistic goals of the project, including the set timeframes to achieve these objectives.

Your online presence wouldn’t be complete without creating social media platforms. You should have one platform for your entire project, and several others for every member of your team. The platforms provide an interaction medium between your brand and customers.

v) Launching Your ICO

Launching an ICO is a pretty straightforward process, especially if you observed the aforementioned procedures. But there are a few twists and turns to navigate before you can put your ICO out to the world.

The first hurdle to overcome is deciding the location in which to launch your ICO. Different countries have varying policies regarding fundraising, particularly in the crypto space. For instance, offering your ICO tokens to U.S residents may not be a good idea since the tokens will be subject to the Securities and Exchange Commission (SEC) regulations. This will come with its share of legal problems given that the U.S government hasn’t exactly warmed up to blockchain. Instead, aim to launch your campaign in ICO-friendly countries such as the British Virgin Islands, Singapore, Hong Kong, Switzerland, and the Cayman Islands.

Lastly, determine the token pricing strategy to use based on your goals. Generally, there are four token pricing strategies:

Undetermined price: This method is divided into several price stages, whereby the token price in the initial stage is fixed. As more investors come in, the price increases as the stages advance.
Fixed price per token: In this method, the tokens are offered at a set price that doesn’t change with the number of investors. This is to say that investors can buy as many tokens as they wish without affecting the price. To avoid market overvaluation, the tokens are frozen for a pre-set period, after which they are made available for trading on the market.
Random price token: This strategy doesn’t have a fixed price for the token. Instead, tokens are issued to investors as per their amount of funds.
Price decreases over time: As the name suggests, the tokens are offered at a higher price than decreases as the sale period passes.

Conclusion

ICOs are a revolutionary way through which the average investor can access investment opportunities that would be otherwise reserved for venture capitalists and institutional investors. This provides blockchain entrepreneurs with a platform to actualize their business goals and contribute to the advancement of the entire blockchain space. However, setting up an ICO project and finally raising funds isn’t as easy as it was a couple of years ago. As such, the above-mentioned guidelines will help you adjust to the changes in the ICO market, bringing you closer to the objectives of your ICO project.