Scam (from English scam — 'fraud, deception') in the context of cryptocurrencies, especially ICO (Initial Coin Offering), is a serious threat to investors. This can be either deliberate fraud aimed at stealing funds or a low-quality or potentially dangerous project that leads to investment losses.
What is a scam in the crypto industry?
A scam is a fraud or a project that does not fulfill promises to investors, which can lead to the loss of their funds. A scammer is an individual or team that stops fulfilling financial obligations to investors. In the crypto industry, scams are most often associated with ICOs, where investors buy tokens in hopes of future profit but encounter deception or project failure.
For a better understanding of this phenomenon, we classify scams into three groups:
1. Deliberate scam — planned fraud with the intention of stealing funds.
2. Unintentional scam — project failure due to excessive ambition or incompetence.
3. Manipulative scam — using manipulations and half-truths to attract investors.
Deliberate scam: when the goal is to deceive
This is the most dangerous type of fraud, where the ICO organizers plan in advance to raise funds and disappear. Such projects are created solely to deceive investors.
Signs of deliberate scam:
• Anonymity of the team: participants hide their identities, which is unacceptable for a serious project.
• Absence of specialized professionals: for example, in an insurance project, there are no experts from that field.
• Absence of authoritative advisors: serious projects involve well-known experts.
• Absence of escrow mechanisms: there are no guarantees for the safe storage of funds.
• Additional token issuance: lack of clear limitations on the issuance of new tokens.
• Absence of softcap/hardcap: the minimum or maximum amount of fundraising has not been defined.
• Absence of MVP (minimum viable product): no working prototype.
• Lack of feedback: the team avoids contact and does not participate in conferences.
• Changes in the whitepaper retroactively: fundamental aspects of the document are changed without explanations.
• Plagiarism: using someone else's materials, texts, or concepts.
Example: Confido
ICO Confido raised funds, after which all official accounts and the project website were closed, and the founders disappeared. Information about the team turned out to be fake, which is a classic example of deliberate scam.
Unintentional scam: project failure due to excessive ambition or incompetence.
This type of scam arises when founders sincerely believe in their ideas, but their projects turn out to be unviable due to excessive ambition, lack of experience, or unrealistic plans.
Signs of unintentional scam:
• Absence of testing or MVP: the project has no prototype or proof of viability.
• Unwillingness to accept criticism: the team ignores reasoned remarks or reacts aggressively.
• Excessive complexity: the project concept is convoluted and hard to understand.
• Lack of independent expertise: the project ignores external audits.
• Unrealistic ideas: promises of 'perpetual motion' or revolutionary technologies without evidence.
• Absence of a roadmap: no clear development plan.
• Unrealistic budget: inflated amounts without justification.
Example: Comsa
ICO Comsa (2017) raised $92.6 million, but their development plan was extremely weak. Signs of unintentional scam:
• Absence of a detailed development plan.
• Anonymity of part of the team.
• 45% of tokens are allocated for team needs.
• Absence of a prototype or logical scheme of the project.
• Technical inconsistency: using multiple blockchains (Mijin, NEM, Ethereum) without clear justification.
• Plagiarism in the whitepaper.
Another example is IOTA, which ignored the conclusions of independent experts. An MIT audit revealed vulnerabilities in IOTA's cryptography, leading to an emergency hard fork. Additionally, the team threatened lawsuits against scientists pointing out the problems, indicating fanaticism and unwillingness to correct errors.
Manipulative scam: playing on emotions
This type of scam is characterized by manipulations and exaggerations. The project may be workable, but vivid imagery, false promises, or complicated schemes are used to attract investors.
Signs of manipulative scam:
• Use of vivid imagery: for example, associations with gold or luxury.
• Overstating capabilities: claims about non-existent achievements.
• Complex bonus schemes: referral programs or MLM structures.
• Playing on emotions: promises of guaranteed profits or solutions to global problems.
Example: IOTA
IOTA actively promoted the idea of connecting 50 billion devices by 2020, although no electronics manufacturers confirmed cooperation. Such exaggerations create an illusion of success but do not correspond to reality.
How to protect yourself from scams?
To avoid losing funds, investors should carefully analyze projects before investing. Here are key steps:
1. Check the team: look for information about the founders, their experience, and presence on social media.
2. Analyze the whitepaper: the document should be clear, free of plagiarism, and have realistic goals.
3. Look for MVP: a working prototype indicates seriousness of intent.
4. Assess the roadmap: a clear development plan is a sign of reliability.
5. Check reviews and audits: independent experts can identify weaknesses in the project.
6. Avoid emotional decisions: promises of quick profits or 'revolutionary' technologies should raise suspicion.
Conclusion
Scam in the crypto industry is a multifaceted phenomenon that can manifest as deliberate fraud, unintentional failures, or manipulative promises. By knowing the key signs of each type, you can protect your investments. Remember the 'black swan effect' — no project can be classified as a scam with 100% certainty, but careful analysis can help weed out the riskiest options. Be vigilant, check facts, and invest wisely!
