Just like the returns on an investment in an initial coin offering (ICO) can be huge, so too can the risks.
The market is still under-regulated. That means investors may be left on their own if an ICO turns out to be a fraud or the project fails. Neither of these scenarios is uncommon.
Investors need to consider the risks very carefully. It’s not in fact rare for ICO teams to simply run off with investors’ money.
Consider avoiding an ICO if:
- The people behind the project are anonymous, use fake identities or have fake accounts on social networks.
- The team lacks professionals with relevant experience.
- The whitepaper and business plan sound unrealistic and/or lack detailed analysis of the market and competitors.
- The project’s authors do not provide an example of their blockchain code.
- There is no working prototype.
- There is no escrow wallet for delivering investors’ money to developers (preferably in portions) only when certain criteria are met.
These are just examples of possible red flags of an ICO scam. Always look for the additional information about the project and its team, read different chats and feedbacks on the project, and the main thing – always be carefull and try to avoid ICOs which seem to be scams.