It is Risky to Invest in ICO's - & how to look out for scam ICO's

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The success of bitcoin and other altcoins like ethereum, steem , eos etc has brought a new system of crowdfunding called ICO where folks buy into an idea of a new company (cryptocurrency) to raise funds in exchange of their coin.

Many folks prefer to be early birds or catch them young thinking its the best option for future investments as such, ICO's are becoming the target of many. However, it is becoming obvious that this is not the case as many ICO's has been exposed as fruad or having bogus claims as such does not stand the test of time.

What then is an ICO as regards Cryptocurrency?
For Investopedia, Initial Coin Offering (ICO) is ;

An unregulated means by which funds are raised for a new cryptocurrency venture. An Initial Coin Offering (ICO) is used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks. In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, but usually for Bitcoin.

Also called an Initial Public Coin Offering (IPCO).
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Are companies offering ICO's meeting up with their promises?

According to a publication by Kai Sedgwick of bitcoin news titled "46% of Last Year’s ICOs Have Failed Already"

It has always been assumed that a large number of ICOs will fail, be it at the fundraising stage or when it comes to delivering the actual project. It’s hard to settle on a precise figure, however, as most dubious ICOs don’t exit scam: they slowly tiptoe away, like a sneak thief rather than a smash-and-grab robber. Having completed an extensive study into last year’s crowdsales, news.Bitcoin.com can report that 46% of them are effectively dead already – despite raising over $104 million.

Furthermore,

**ICOs Are Even Riskier Than You Think
**

Given enough time, everything withers and dies, from the most robust institutions to the most popular crowdsales. No one expected all of 2017’s ICOs to last the course. The pace at which they’ve withered and died may come as a surprise though. Tokendata, one of the more comprehensive ICO trackers, lists 902 crowdsales which took place last year. Of these, 142 failed at the funding stage and a further 276 have since failed, either due to taking the money and running, or slowly fading into obscurity. This means that 46% of last year’s ICOs have already failed.

The number of ICOs that are still a going concern is actually even lower. An additional 113 ICOs can be classified as “semi-failed”, either because their team has stopped communicating on social media, or because their community is so small as to mean the project has no chance of success. This means that 59% of last year’s crowdsales are either confirmed failures or failures-in-the-making.
Read up more from source here

However, not all ICO's are bad, most are genuine and uses this great innovative option of crowdfunding to sell their ideas and raise money but be aware, not all great ideas work out as such, invest what you can be able to loose.

To look out for fake ICO's, below are some of the ways to find out if they are real or not

Unrealistic goals
You have to be on the look out if the goals are bogus and unrealistic like some claiming they gonna replace bitcoin or price will shoot above 100x in less than 1 month. Note that serious team members will never give price predictions or lay bogus claims but just inform investors that they have good potentials. But scammers can promise heaven and earth just to get folks to invest.

-Whitepaper
Whitepaper is where you should look into to understand all about the project.

Whitepapers usually explain how the platform works both on the high-level and specifically. This often includes charts, calculations, simulations, specifications and so forth. If your project claims that it is building some sort of decentralized service or token with new features and actually provides no explanation of how it works specifically, then just close the document and walk away. A perfect example of this is deClouds. An ICO that turned out to be a complete scam with no product whatsoever. Their whitepaper is full of nonsensical claims which fooled many less than tech savvy users - Read it here.

Team
Checking out team members is very vital. Ensure they have visible teams and try to know if they are reachable. Remember, many can use real folks who may not even know about the project. So do your due diligence very well. Check out if they have social media contacts like facebook, linkedin etc that is old or newly registered for the purpose of i.d theft, check their friend lists and see if you can reach any of them to learn about the character of the team member. Ensure there are visible profile pictures and past work experiences in related fields etc.

No Code Repository

This is what matters. Like someone said before “Code is law”. Even if the project announcement and whitepaper are complete trash, you can always count on Github or Sourceforge to put an end to all doubts. If the project provides no link to the code at all or if the project is nothing more than a clone with a few changed lines of code, then it’s not worth your time nor money.

Buzzword salad

“Our decentralized blockchain-based platform will disrupt the landscape of cryptocurrency investment while building a trustless network of pseudonymous users that leverage swarm intelligence technology to provide real world financial services in a tokenized ecosystem.”
Sounds great, right? (Not really) Well, maybe I’m not as good as some scam artists are but that’s the gist of it. Buzzword salads look good but when you actually sit down to digest them, they taste like vague claims and empty promises. If you read through a paragraph and have learnt nothing new by the end, then there is probably nothing to learn.
Some people may have a tendency to use buzzwords as a means to turn a boring text or announcement into something exciting. However, these will have a certain amount of information on it, even if you have to filter out some of the nonsense. Still, if a project needs to do this, then the project is likely to be as boring as watching paint dry.

-Compromised Escrow
This option is very vital and important too.

Escrow is basically a service that holds coins for their customers until a certain deal is completed.
For example, I sell you a laptop for xyz amount of btc. If I send you the laptop first, you may never send me my btc and if you send the btc first, I may never send the laptop. An Escrow service fixes this situation by holding the btc until the laptop is received. If the laptop is received, the escrow can release the payment. If not, the coins are returned to the buyer.
ICOs will usually have an escrow to hold user’s funds during the ICO and after. These escrows are usually multisig wallets in which the multisig key owners are two or more trusted members of the community and one project team member. In a scenario where a project member has one key and two community members have two keys of a 2-out-of-3 multisig wallet, the team member requires permission from the one of the other key holders in order to move the funds. This is why it’s important that at least two of the escrow members are known community members and have confirmed their intent to be an escrow.
It is vital to note that escrow releasing 100% funds towards devs on token distribution is bad escrow. Good release conditions is when parts of funds get released on development progress: 20% on tokens distribution, 50% on beta release, etc.”
So keep an eye out for the Escrow participants and the escrow conditions. This may save you some money.
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Thanks for reading. Do comment if you have any experience from any ICO coin like I did with Fujinto coin which turned out bad. Send in your comments and more points on how to notice a scam ICO or good ones. Do also resteem and upvote if you like this posts and wanna show support. Do follow for more.