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ICOs are on everyone’s lips these days: their tremendous power exceeds all others for a variety of reasons we will describe beneath. Also, they conceal much danger.  Telegram is at the top of the list with $850,000,000 raised. Imagine the temptations connected to the money. Even more interesting than the volume is perhaps the tempo of development. First Blood, a smart-contract structure designed for gamers, gathered 465,313 ETH, ($5.5 000 000), in a matter of 8 minutes 48 seconds. ICOs hold billions’ worth of cryptocurrency and even more potential.

What to look for

Independent analysis agencies like ICOrating and Ambisafe Inc., which were designed specifically for the purpose of separating the cons from the pros, declare:

“Some of the business projects currently engaged in carrying out ICO’s have the capacity to eventually grow to an enormous size and repeatedly return the investments made”.

According to different estimates, from $2.37 000 000 000 to $3.4 000 000 000 of all cryptocurrency lies within ICOs. Every self-respecting trader who has a little bit of capital has at least contemplated investing into an ICO, and knows the risks: most of them are fake. Depending on the country you live in and the extent of development of your crypto legislation you may be more or less lucky, but the chances of finding a reliable and trustworthy ICO are pretty slim.

The kicks that people are looking for have to do with the fact that a decentralized system offers much more freedom and potentially substantial pay-offs than the traditional systems. The problem with it is essentially the same: it offers freedom and pay-offs not only to clients but also to organizers, who have been known to gratefully accept the money and big the investor’s goodbye, never to be seen again.

The problem

The root of the problem is that there is currently no worldwide consensus (take a look at the latest G20 notes) on how cryptocurrency should be regulated, so the crypto community is more or less based on trust and tenderness.

Most people are aware that there are so many angles and possibilities that the most of the world’s financial folk won’t even go there. Yet for the adventurous few the need for skills and intelligence is glaring. In this case, being robbed will likely mean the end of an investor’s career.

In his interview with CNBC Brad Garlinghouse, CEO of Ripple, said:

“There are a lot of really fabulous things that get done with digital assets and blockchain technologies to reduce friction, to reduce costs, and enable things that weren’t possible before. I think a lot of what’s happening in the ICO market is actually fraud, and I think that will (eventually) stop.”

The U.S. Securities and Exchange Commission has a more realistic, if more morose, look at things. With more and more fraudulent activity emerging as the cryptomarket is picking up, the SEC is also stepping up their game, paying close attention to the ICOs that have been raising substantial amounts without much product quality to back up the façade. Another confusing fact is that the amount of money raised for a company is in no way correlated to the quality of the product. SEC’s Chairman Jay Clayton states:

“It would shock me if you don’t see pump-and-dump schemes in the initial coin offering space. This is an area where I’m concerned about what’s going to happen to retail investors”.

So what to look out for?

We’re listing a few signs here that will help you separate the bad, the good, and the ugly. If you sense as much of a whisper of trouble, vanish.

The team

The first and the most obvious is the team behind the ICO. If their portraits are hung up, there is a direct line to the office, and the registration is in order, and they have good track records, breathe a sigh of relief. If anything at all is wrong, or if you Google one of the team and bad info comes up – move on.

The Escrow

You know what an escrow is, so we don’t need to tell you this is the most important part. Just in case: an escrow guarantees both sides’ safety when money or tokens are exchanged. The finances are held within an escrow, which only both sides have access to. Ideally, each side should have a key each which is required. Study Declouds’ example and learn a lesson: often companies are not what they seem.

Vague/cosmic wording

If you’re finding wording on the project’s page that looks like “We are a fast growing company that strives to deliver the best possible service to its clients. With a team of young, dedicated professionals…”, it’s time to go. Now.

Not assessed externally

It is extremely important that you hire a reputable independent (!) agency to do due diligence checks. We hope we don’t need to explain this to you, so we’ll leave this to Ambisafe CEO Zamovskiy, who points to “disappointing statistics of fraud in this field.” To Forbes:

“From our own experience, we strongly recommend prospective investors that they study the subject of investing in more detail or refer for analysis to professional rating agencies. Rating agencies will help companies entering ICO organize all the necessary information, which will improve the reliability factor of the project in the eyes of investors.”

Armed with this knowledge, you can navigate the seductive, deceptively demure, and dangerous waters of today’s cryptomarket with better hopes of getting the results you’re looking for. Stay safe and do your due diligence research.

Image via Feedzai.



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