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How to recognize a fake ICO?

How to recognize a fake ICO?

BlockchainTech Congress is the first edition of the event, which is entirely dedicated to blockchain technology. Blockchain is a big chance for most sectors, which can be completely changed by the ultra-modern technology. On 28 March 2019 at The Westin Warsaw Hotel, I am going to moderate a debate on “How to recognize a fake ICO in the jungle of constantly emerging new blockchain implementations?”

Panelists include Piotr Smoleń, CEO & Managing Partner at Data Ventures VC, Katarzyna Ciupa, Bitcoin Austria Verein, Adam Vaziri, Director, Diacle.

As a blockchain and ICO advisor, one of my responsibilities is to have an eye on almost all new ideas, and I have to say it is becoming harder and harder to spot a fake ICO simply because scammers are getting better at it. First this article, I will talk about major factors to spot the right ICO, later during the debate, we will challenge all these ideas and try to demystify the definition of a fake ICO. Just to start by an example, we can monitor the Benebit ICO.  They had everything you look for in a legitimate ICO and it was so convincing that even reputable ICO review websites like icobench gave them a 4.1 out of 5 score, much higher than many legit ICOs. Benebit had a professional website, well written white paper translated into 3 languages, strong team with convincing linked profiles…etc. They could have run off with more money until someone found the team pic stolen from Thsboys.org.uk (Pictures below). They ran off with $2.7 million worth of Ether. They could have scammed more if not for the accidental find and we should all take that as a heavy lesson moving on.

Have a play at Yet Another ICO to see how easy to fake an ICO.

Here I am going to ask a few questions and try to provide more information about it to help you understand ICOs and be able to make your decision with more certainty. You can ask your questions in the comment section and will update the post after the debate.

What are the differences between Tokenized securities and Utility tokens?

Generally speaking, tokens that represent shares of business considered Tokenized securities. However, the SEC believes any token that can’t pass the Howey test should be considered as a security and fall under the 1934 Security Exchange Act.
The Howey test consists of the following:

  • Is it an investment of money or assets?
  • Is the investment of money or assets in a common enterprise?
  • Is there an expectation of profits from the investment?
  • Does any profit come from the efforts of a promoter or a third party?

The final factor of the Howey Test concerns whether any profit that comes from the investment is largely or wholly outside of the investor’s control. If so, then the investment might be a security.

The utility tokens are services or units of services that can be purchased. Balaji S. Srinivasan, CEO of Earn.com compares utility tokens to API keys, used to access the service.

How do you review the four T’s of ICOs (Team, Technology, Token, Timeline)?

Team: It can be said that in the ICO world, your team sells your project. The team should have a relevant track record in the same sector as the ICO and this claim should be able to be backed by multiple sources. The team is the initial point for determining whether a company is legitimate or a scam. You should be looking for how to complete their team’s LinkedIn profile is, how long the team has been in finance or tech, and if the team is backed by any major players.

Technology:  More tech-savvy investors determine if they want to invest in an ICO solely on the platform. Having solid technology is a surefire way to sell any ICO investor into spending their hard-earned money. This is akin to crowdfunding in a lot of ways. People are promised a product in the future, investors line up to buy, and the product delivered is either faulty or not delivered at all. It can be very disheartening for any newcomer to experience an exit scam the moment they join the ICO world. Unfortunately, it occurs at a higher frequency every single day.

Token: Token’s and their tokenomics are important to look at, but it is hard to define how useful they are in determining the viability of an ICO. Unfortunately, if you ask 100 different people on which of the three (utility, security, and equity) tokens is the best and why you will get 100 unique answers. Many veterans advise you to look at a platform’s tokens. If you cannot determine whether a project is legit or not after reviewing their team and technology, tokenomics may help you decide whether an ICO is worth it. Good tokens backed by a solid team and platform will usually be legitimate. The opposite is completely true as well. A bad token usually means a bad ICO.

Timeline: Timeline is last but not least. Knowing when a project plans to deliver on its promises is incredibly important. While not as pressing as tech and team, a weak timeline will convert into less interested users and increased levels of FUD. It is hard to find an example of a successful ICO with a weak timeline. Most usually never make it past their “raise.” Most usually exit scam. An excellent way to get a sense of a company’s timeline is to visit their Slack or Telegram groups. If the core team is responding regularly, it is an excellent indication of a legitimate ICO. People who care about their projects tend to be slightly neurotic about it. If a CEO or founder is constantly correcting or answering questions, it is a good sign that the team is connected.

What is the best industry to be disrupted by blockchain?

Voting: Blockchain can eliminate voter fraud, providing a clear record of the votes cast, and prevent any chance of a rigged election. Furthermore, this could all be done on a mobile platform, allowing busy individuals the opportunity to cast their vote without going to a polling station. Follow My Vote promises an ‘online voting solution for the modern age’ via blockchain technology.

Healthcare: Current challenges in the healthcare sector include keeping patient records private from hackers while allowing authorized access by providers. Applying blockchain to healthcare records promises improved data security, with better access for healthcare professionals and patients alike, and greater transparency for healthcare transactions. Gem has partnered with Philips in this space.

Photography: Photographers can face challenges when it comes to getting paid royalties for their snaps, especially in our digital world where image theft is often just a click away. With that in mind, at the recent CES show in Las Vegas, Kodak revealed its new digital currency, KODAKCoin, which is backed by a blockchain ledger and image rights platform called KODAKOne.

Internet of Things (IoT): In 2015, IBM and Samsung showed off an application of the blockchain known as ADEPT (Autonomous Decentralized Peer-to-Peer Telemetry), which is designed to decentralize the IoT, and allow devices to communicate directly, without a manufacturer’s hub getting in the way and trying to lock users into a particular ecosystem.

Cloud storage: Storing data in the cloud has become an increasingly popular and convenient practice, although it still has potential problems – like downtime and losing access to your data temporarily, or more seriously, the cloud service being hacked. Storj is a company that’s using the blockchain for open source cloud storage.

Public records: The use of the blockchain represents an innovative solution to encode the public data in a digital ledger, keeping the info safe from being altered. In the US, Delaware-based Ubitquity has the first blockchain-based system for property record management including titles, which is in testing overseas at the Land Records Bureau in Brazil.

Banking: Financial institutions continue to face challenges with identity theft, cost efficiency of transactions, and just general security. The blockchain will certainly digitally disrupt this industry, and holds the potential key to faster transactions, at less cost, and with a higher degree of security. IBM has partnered with Axoni and R3 to develop and deploy distributed ledger technology to the financial industry.

Car Leasing: Leasing a car can end up being a protracted process, with multiple parties involved in the transaction, all needing to verify information before the car rolls off the lot. DocuSign, has partnered with credit card giant Visa to apply blockchain technology to Smart Contracts that promise a streamlined ‘click, sign and drive’ approach to securely leasing a vehicle.

Music rights: The entertainment industry is looking to blockchain technology to secure digital rights for music and other media, with the potential to recapture that income. The British company JAAK has grabbed attention with its effort to create Smart Content with a “global view of content ownership and rights”.

Worker credentials: When companies hire an individual for a job, they want to get the best-qualified person with the most appropriate experience levels. The Learning Machine is applying blockchain technology, worker and professional credentials can be verified and kept in a secure digital ledger, which cannot be altered down the road to fit another position the applicant is subsequently interested in. The firm promises inherent fraud protection which could make choosing the right person for a job a good deal easier.

What is the ICO hard cap?

What is the ICO hard cap?

When looking to invest in cryptocurrencies, there are few initial factors to consider which could give you a good indication of whether or not a particular token has the potential to increase in value. One of these factors is the hard cap of the coin circulation. The hard cap is the total issuance of a coin that will be created. This amount is fixed and specified before an ICO is launched. The coin distribution can never exceed this amount.

Before looking at the importance of the hard cap, there are three distinct categories of coin distribution that’s often used in investing.

Circulating supply

This is the amount of coins that are actively being traded in the market. In some instances, projects could have all their tokens pre-mined and released all at once through the ICO. The circulating supply will, therefore, be the same as the maximum supply.

Other times, tokens have to be mined over time or coins are released on a schedule. In this case, the two supplies will differ. Either way, circulating supply tells you how many coins are doing the rounds at that very moment.

Total supply

This is the amount of coins that actually exist, including the ones that are not in circulation. Why would coins exist but not be in circulation? It could be for a number of reasons. A team might have mined coins but kept them back without putting it on the market. Or developers are required to hold their portion of the ICO for a set number of months which is to prevent coins being dumped as soon as it gets listed. The coins therefore exist but are not yet in circulation.

Maximum supply

This is also known as the hard cap and is the most important one of the three. It will tell you the maximum number of coins that will ever be created (Bitcoin’s hard cap is 21,000,000 tokens).  Not all cryptocurrencies have a hard cap. Ethereum, for example, has no maximum supply limit of ether.

Why is the hard cap important?

There are two main reasons to have an adequate hard cap.

The first has to do with scarcity. Think about diamonds for a second, we know the scarcer they become (i.e. there are only so many diamonds in existence) the more valuable they become. It’s the same with cryptocurrencies, simple supply and demand. If there’s a finite supply of a particular token, the value of the coin is likely to increase over time.

This, will in turn, protect the integrity and value of the underlying network. There is, however, a fine balance in getting this number right. Too low a hard cap and you won’t be able to raise enough funds to develop and grow the network.

On the other hand, if the network is flooded with tokens that don’t have a purpose because the hard cap is too high, the value of the coin will become diluted, causing a drop in the integrity and value of the network.

The second reason is closely connected to the project roadmap. For every amount raised, the startup should make sure there is a clear and concise purpose for it. Basically, if we raise so much, we plan to do this, if we raise more than that, here is where the funds will be applied.

However, we’ve seen projects raising hundreds of millions of dollars with no set objective of what to do with all that money. There have been instances of startups setting a funding target of $20 million but then go on to raise over $200 million because they didn’t set a hard cap. There’s no predetermined plan for the excess $180 million. If funds are not put to work effectively, especially within young startups, investors will never see their expected ROI.