So, here we're.
From an affordable, secure, and pristine hotel room where bright minds and fat wallets could meet and stay overnight to give this world something decent and then collect money from the grateful public, cryptocurrency crowdfunding transformed into a cathouse avoided by the former and neglected by the latter.
With the figures varying massively in relation to the source and amount of money the given source was paid, it's possible to say that 80-95% of the ICOs collecting money now are the fraudsters.
Why believe us? Well, we're an IT company that has no interest in giving you untruthful information. Besides, we're writing unpopular things here. And, you know, nobody pays for pointing out what the majority prefer to never really acknowledge. We make money out of delivering the code and consulting our clients and we make much more than we could by merely lying to our few readers.
At this point, it would be logical to explain what, if not the $ figure, motivates us to create this article.
As a software development company, we've been serving a number of individuals launching ICO campaigns. Not all of them are downright honest. No, not with us (they pay and they pay enough), but with those their campaigns are focused on.
As the staff behind the scenes, we can always tell a scum from a real thing. It's enough to just examine the whitepaper or discuss the project with the client. But, you know, money is money - we don't say no even if we see that the project will end up as deceit (and, believe us, we're are not alone in our pragmatism). Nor do we expose those who don't want to be exposed - some business rules cannot be broken.
Yet, believe or not, accomplishing such projects doesn't feel fine. We're interested in truthful ICOs and honest investees. We honestly believe in a better future of the ICO and we would like to be on the right side when it arrives. Finally, we take care of our reputation. And, as you must have already noticed, we're making ourselves a bit of an ad.
That's where our motivation comes from.
Getting wrong things right
Many, primarily those who've already succeeded in losing money, prefer blaming ICO creators, governments, blockchain - in short everything and everyone except for themselves.
We don't agree. Not a single ICO cap has been achieved with a gun put to the investor's head. Folks voluntarily give money to a random guy on the Internet, whose fault is that?
According to the latest statistics, only about 40% of the cryptocurrency investors bother themselves with merely reading the whitepaper - the alpha and omega of any crowdfunding activity. What it means is that more than half of those who contribute their money have no idea about who is the one they're dealing with or what it is he's going to attempt.
Look at this. The guys had fun (and also largely inspired this article) while still raising real money. $247,300 according to their own website, more realistic but still impressive $80,520 according to this stat.
The simplicity, openness, and lack of regulation in the area indeed fuel the flames, but they are barely the source. The greediness and go-happy-lucky attitude of the "investors" seems like a more realistic answer.
To prove this predictably unpopular point, some examples of how dubious affairs helped not particularly discerning people to lose millions in the past should be introduced.
$5,6 billion raised by ICOs in 2017 and just over $4,4 billion made in 2018 (as for the time of this writing) no longer look that impressive, do they?
The bottom line is this: What is now happening in the cryptocurrency funding area has been happening in the financial field right from the moment people coined the term "investment". Impious ICO founders just meet the demand while allowing the crowd to do what they like most - losing money.
And it all is perfectly sensible from the investees' perspective: why would you spend a massive amount of funds, even greater amount of time and work hard while trying to create a real thing when you can come up with something cheap and cheerful that will make you just as much money, albeit in a not that honorable but still pretty secure way?
Speculations. This time, not financial
From our perspective, there are only two things that can change this dire situation:
a) Public awareness;
b) Legal actions of governments.
Informing people about how to distinguish scum ICO from a worthwhile project and explaining how it all actually works will reduce the demand. Implementing rules and responsibility for the digital fraud will up the stakes for the scammers affecting, therefore, the supply.
With the latter being just a bit beyond our jurisdiction, the former is exactly what we're doing here.
So, let's proceed.
6 steps to recognize the rubbish ICO
Researching the project, learn as much as you can about the principals behind it. These days, it's almost impossible to fabricate the identity. LinkedIn, Facebook, and what is known as Google can give you a comprehensive profile on nearly anyone. If they don't, well, use what is known as logic to understand why folks hide.
Pay attention to the previous projects of the given individual(s); check whether the stated information corresponds to the facts or not. Fact-checking must go deeper than just getting acquainted with the names of brands. Look, at least, at the number of employees; foundation/liquidation dates.
Reputation is a priceless resource. Reputable founders try (and should) use it to the full extent. A guy with half a dozen of projects behind wouldn't sacrifice his/her hard-earned fair name for a gravy train simply because the one can (and likely know how to) make just as many bucks without being hated and hunted down by the deceived investors.
If you see a famous face advertising an ICO campaign (such a trick is now rapidly growing in the popularity), then there is almost no doubt that the founders want to trick you. That's because any adequate project (with any adequate management) will attempt to deliver you technical information, graphs, statistics, etc.
If they want to attract investors with a face, i.e. they pay (and they pay a lot, remember it) to the owner of this face, then they simply have nothing to tell you and they target not very intelligent people in the first place. Who, if not them, would invest in the project just because Steven Seagal's mustache promotes it?
The same story with excessive marketing. If the content (videos, articles, or presentations) focuses mainly on how cool the investees are instead of giving you actual data, then you should quit, too.
Read the damn whitepaper! Read it using, yet again, brain, Google, and, if possible, assistance from those who know the area and those who you trust.
There is, however, a problem with a whitepaper. What you have to gain there is the technical information about the project. But you kinda must have an understanding of what it's about.
A number of scummy ICOs give you a collection of barely readable stats and business-like terms and phrases that look perfectly serious for a layman but make no sense to specialists.
As an example, the blockchain itself can be considered. Since the cryptocurrency is based on this technology and the entire ICO field is strongly associated with blocks and chains, many think that the blockchain is a must in any ICO project and happily accept anything where they find the sacred word.
But it's a misconception. Blockchain is like an aircraft carrier - you need it only for something substantial. You don't use the thing for transporting a pair of socks across the Atlantic.
Understanding of whether the given campaign is about the transportation of socks or is going to eradicate the terrorism on a global basis and the evaluation of the adequacy of the presented tools is the exact job the majority of ICO consulting companies do.
While a sightly face is a good sign of fraud, the proper host country is a strong proof of fairness.
With the majority of governments still pretending that there is no such thing as crowdfunding, certain countries have already developed a regulatory basis protecting the investors.
Since the job is in the progress, it would be wrong to recommend the exact country - the norms may change by the time you're reading this. But we can outline the applicable logic:
1) You learn where the given project comes from;
2) You learn about current (and upcoming) norms; whether the ICO is regulated there or not;
3) You get a lot of confidence if the given project is from the area where punishments are prescribed.
Think about it this way: with a variety of 100% safe options, why would a fraud maker take risks establishing the venture where he/she could be imprisoned for it?
Whereas the religious Chinese tradition prescribes one to live in harmony with the Dao (the Way, in Chinese), the Decentralized Autonomous Organization implies the harmony between the investor and the investee.
Devised not that long ago, the philosophy implies the use of a public blockchain with smart contracts for involving investors in the process of project management. With DAO, investors can vote and decide whether they want to give money for the given investee's activity or not and take money back if they're not satisfied with the progress.
Obviously, such an approach is unacceptable for the untruthful ICO makers, which gives those who are truthful another possibility to gain a few credits. Since the DAO concept is not particularly spread so far, the crowdfunding based on it is a rarity now. There is no doubt though, the technique will be growing in use in the future.
In the economy, liquidity is effectively a measure of how much somebody wants the thing you own. Dollars are perfectly liquid - everybody will take them from you; the tokens offered by the majority of ICOs get perfectly illiquid almost instantly once you've bought them - buying an ether or a bitcoin with their help is like buying a car with candies.
Examining the whitepaper, the one thing you can evaluate yourself is how much attention the founders pay to the ICO aftermath. The liquidity of tokens belongs there. Except for themselves, scum makers traditionally focus on the launch and the nearest future of the enterprise. Such things as token liquidity and other determinants of long-term success are typically left behind.
Hence, a comprehensive explanation of how the tokens are going to be maintained liquid and an accurate plan describing not only the profits but also the possible devaluation and risks should be considered favorable.
The happy one, we believe.