3 kinds of ICOs — Protect yourself

[Forward_Thinking]

There are 3 kinds of ICOs:

1)  SCAMS

There have always been a lot of scammers, hackers and thieves in the crypto space since day one. Think of Mount Gox. According to Business Insider:

“…one out of every 16-17 Bitcoins belongs to someone who stole it”

If you don’t think that these thieves are trying to steal money through ICOs or from ICOs, you are kidding yourself. You just need to see the Bitcointalk forum dedicated to scams, or to participate in a Slack channel and you will see the never-ending phishing e-mails trying to lure you to their sites, in order to empty your wallet.

In addition to thieves and scammers, there are those who lie or exaggerate. Many users on Bitcointalk are pump and dumpers.

2)  CRAP

Everyone is desperate to host an ICO to make money. Therefore, they are throwing anything and everything onto the blockchain, including the kitchen sink. They may not be intentionally trying to scam, but they think that they have a good enough idea for an ICO. But these will fail because the blockchain will not solve anything for them. Examples include ICOs that want to put 3D data (which would equate to hundreds of Terabytes of data) or 153 exabytes of medical data on a blockchain. This shows that they are clueless about the blockchain and have never run Bitcoin’s full node. Bitcoin’s blockchain is 120 GB and Ethereum’s blockhain is 200 GB and they are both having scaling problems.

They are also throwing any kind of business problem that they can make up, into the ICO. If they cannot make up the business problem, they will exaggerate about it. They will fail because the business problem doesn’t really exist, isn’t significant enough, cannot be solved by a blockchain or they do not really have the solution, though they try to make it sound like they do with lots of technical jargon.

Swarm Fund cites this business problem:

“You need large amounts of money to buy real estate and your money is tied down for an indefinite amount of time.”

This is a lie and not a business problem. You can buy one share of a REIT, and there are thousands of REITs to choose from, and you can sell it one minute later. If they start off their pitch with a lie, what else are they lying about?

Energi cites this business problem:

“A small number of large energy companies supply millions of customers who are price takers.”

Therefore, the solution is to create more energy suppliers, especially nuclear power plants, which is the cheapest source of electricity. But the project does not propose this. They propose to enable consumers to sell their solar self-generated electricity directly to other consumers.

To do this, consumers should have BOTH solar panels and batteries. This is a TINY market. Though solar panels are growing, it is still a tiny percent of the market and solar generated electricity is still much more expensive than nuclear generated.

Consumers with solar panels do not have that much surplus electricity to sell anyways. They use most of what they generate. Tesla and Enphase hyped up their batteries for solar panel owners to store their surplus electricity. These batteries are NOT selling. Enphase spent over $100 million to develop their battery and partly because of the lack of battery sales, their stock has plummeted approximately 85%.

Of course, the project’s pitch looks impressive at first glance.

3)  LEGITIMATE

There are only a few applications that make a lot of sense for the blockchain: transfer of value (currency), store of value, remittances (disrupt Western Union and bank wire transfers), smart contracts, gaming and gambling. These applications will disrupt their respective industries, because the blockchain will provide a lot of cost-savings or time-savings to the users. There might be other applications that make sense that I missed, but applications proposed by many ICOs do not make sense. Jesus Coin is an extreme example, but there are applications that fall across the spectrum from Jesus Coin to Bitcoin.


YOU CAN REDUCE THE RISK BY USING 3 FILTERS

1)  The project’s idea should make sense, but do not base your investment decision purely on the idea. Watch:

“Ideas are like assholes - everyone has one, no one cares”
https://www.youtube.com/watch?v=PhJgrEackis

Entrepreneurs typically try to hide their ideas because they think they are the only ones that came up with the ideas. Venture Capitalists tell them to scream their ideas to the public and they’ll see that nobody will steal them. Ideas are a dime a dozen. There are probably 10 other people with the same idea that you have or that the ICO has. The most important factor to success is the ability to execute. This is why Venture Capitalists refuse to sign non-disclosure agreements and rarely invest in startups which haven’t built a prototype or product.

HAS THE ICO TEAM BUILT ANYTHING THAT WE CAN USE TODAY?

If not, take a pass. This is the best evidence that the team can execute. It takes way more skill, time, work and money to build an app than to create a one-page website and video. It shows:

• The team has proven that they can develop.
• It is less likely that the team will invest so much and not follow through.

Everything else is useless. Don’t be fooled by big teams, fancy pretentious titles, references, roadmap, video, fancy animations, escrow, blogs, Slack, Telegram, Twitter, Facebook, Reddit and white paper.

One project stacked their team with a dozen people and then lied about them. One member had the title of “Blockchain Expert”, but he worked in Inside Sales until 1.5 months prior. One member had the title “Blockchain Developer”, but he never developed a blockchain before.

Here is an example of a project team using fake photos and fake names: https://bitcointalk.org/index.php?topic=1949528.msg19485217#msg19485217

Don't rely on Github unless you can verify that they didn't copy the code from someone else and you can run it.

Several high profile projects raised millions of dollars and still have not produced an app. This number will grow and become more evident in the coming years.

Gnosis raised $12.5 million and their website says:

“The Hunch Game is nearly ready and can be launched in the first half of 2017 as an example Gnosis app.”

No app yet.

Qtum raised $15.6 million. I don't see anything produced on Qtum's website.

After raising $50 million, Cosmos's website is still pitching its white paper. Come on. What have they produced with that $50 million?

Augur had Vitalik Buterin on their team. After Satoshi Nakamoto, Vitalik is the most desirable person in the universe to have on an ICO team. After raising multiple millions and after two and a half years, all they’ve released is a simple beta that is barely usable.

Don’t be suckered by animations and videos. Satoshi didn’t have any of this and his coin was the most successful. Besides, the animations aren’t that impressive anymore, as I’m beginning to see the same animation on multiple websites. Some of these teams must be using the same graphic designer.

There is no guarantee that any business will not fail. But, when the ICO team has a prototype/product, they have proven that they can develop. That significantly reduces your risk. With many ICOs, you have no idea if they can build anything. You cannot trust the information on the profile of many ICOs. Just because they can hire somebody to make a video, it does not mean they can write thousands of lines of complicated code. It's like you giving money to someone to fix your car, simply because he says he can fix cars but have never fixed one before.

Y Combinator is one of the biggest startup incubators in the world. They provide a small amount of funding (approx. $25k to 50k) to startups, which usually consists of 2 founders each. Then they build prototypes or products. Then the startups give pitches to angel investors or Venture Capitalists. If prototypes or products are unnecessary, then why do they waste so much time and money before pitching to angels and VCs?

Almost all incubators have startups that consist of usually only 2 founders, that are building prototypes and products. ICOs are stacking their team with a dozen people and they still cannot build anything. With 12 people, they should've built 6 prototypes/products by now. This shows that they are simply stacking their teams with useless people, in order to impress you or sucker you in.

2)  IS THE TEAM FROM A CORRUPT COUNTRY?

Check Transparency International's ranking.

If so, take a pass.

The number of ICOs from corrupt countries, especially those that were famous for sending out phishing scams for years, have exploded.

Yes, there are scams from countries that are not corrupt and successful projects from corrupt countries. What is important is the probability and if you are willing to take the extra risk.

In non-corrupt countries, people grow up with lots of regulations and enforcement. Though there are exceptions, the people feel that the way to get ahead is based largely on merit. In corrupt countries, there is less regulation, less enforcement and more people trying to find ways to get ahead by working around the system. In fact, they see that the most successful people in their country, usually in their government, are those who get ahead by lying, cheating or working around the system, instead of based on merit. If you do not think this is a risk, you may be right. I may be wrong.

Law enforcement is a big deterrent. Hurricanes prove this. After hurricanes Katrina and Irma, there were widespread lootings. Why? Because police are not on the streets and criminals feel immune from punishment.

Law enforcement through extradition is a deterrent. If an Australian defrauds investors in Germany, Germany can extradite the Australian and punish him. However, there are many countries without extradition agreements. This provides immunity to ICO teams. Therefore, they can lie, defraud and cheat investors from other countries, and there will be little to no recourse from the other countries.

There are many ICOs enticing investors, by claiming that their token or coin will go up in value or that token holders will get dividends, profits or ownership in other assets. Some tell buyers that they are “investing”. This means that they are selling securities and are breaking security laws.

I watched a video of a conference. ConsenSys was warning about the repercussions of selling securities. Waves’ CEO, who is from a country without extradition agreements with Europe or U.S., debated this, downplayed the concern and shrugged it off. Even if Europe cannot punish him, if Europe bans his coin, will you suffer?

Without law enforcement, ICOs can lie and get away with it. One project claimed that they will make 400+% return per year for the investor. In countries that enforce securities laws, if you make this claim and do not deliver, investors can sue you. In countries with advertising laws, the police can punish you for false advertising. In countries that are immune from these laws, ICOs can make any claim they want. One of the most egregious claims is when an ICO that tells you that you will be a part owner of a physical company. Good luck in getting a judge in their country to force the company to give you equity because you own some ERC-20 tokens. Good luck to you and your multiple flights to that country.

Few corrupt countries have extradition agreements. For those that do, can you rely on their corrupt governments to fulfill their obligations?

3)  “NEVER INVEST IN A BUSINESS THAT YOU DO NOT UNDERSTAND”

This is a quote from Warren Buffett. It is very applicable because many ICO teams try to impress the audience with technical jargon. Many investors are not tech savvy and are baffled or confused, but they invest because they think that the project team must have come up with a technological break-through.

Last word:

You need to be able to verify that the business problem exists, that the market size is truly as big as the ICO claims and that the solution is possible. Quite often, they exaggerate on most of these. You need to verify that a blockchain or a cryptocurrency actually is needed for the solution. Quite often, they’re not.

Do not rely solely on ICO listing or rating sites. They likely do not know about all of the ICOs. Not all ICOs are willing to pay to be listed. They have methodologies that you may not agree with. Some claim to be experts, but you are likely more of an expert in your own field, whether that is medical, law, engineering or finance, than they are. They will likely have biases, especially for ICOs originating from their country or region. Putin wants to increase the crypto industry in Russia. Is this why there has been an explosion of ICOs from Russia? Even Putin’s Advisor ran an ICO. If Russia took out Facebook ads to disrupt U.S. and European politics, who is to say that they will not pay off ICO listing and ratings sites to favor Russian ICOs?

Wow! This is some really great work. Thank you for sharing it. The Russian ICOs are something I avoid as well, and there are a lot of them. Really great work here!

[1715695907]

1715695907

[Forward_Thinking]

It's probably safer just to skip most ICOs and wait for the coins to be listed on exchanges.  If they can make it that far, you'll get a fairly good idea how solid a project is based on how quickly the ICO buyers dump their coins onto the market 

Safer, yes, but many ICOs have produced sizable returns. If an ICO meets the criteria in this thread, to me it's worth the risk for a small amount. The scams are really the worst part. I always check LinkedIn profiles to make sure these people are real. I found a professor listed on a site and wrote him and he said he is not advising them. Scam! Do your homework.

[Forward_Thinking]

One point you may have missed is the level of invention. ICOs attract inventors and invention minded people. Everyone want to be the next Bitcoin. But those really big ideas take time and might fail. That is probably why some of those ICO you mentioned that are big have not produced anything yet. I don't know, I didn't look them up, but for ICO advice, if the product is so revolutionary that everyone will surely want one, it's has a high likelihood of failure, because the idea is just too big.

[jiapetz]

great input, thanks for providing these details.

1. Invest in an existing product
2. Invest in a team that has a proven record!

[gtinvest]

90% of ICOs are scams

I think is more, 95% ICO are scams. After the ICO eBTC exploded then other dev trying to make it happen too. Beware !
Thank you for reminding us bru

[mohucool]

A very insightful article, yes we need to be very careful while choosing ICO as most of the icos doesn't solve a business problem and some are pure scams. I also ponder the way ICO's raise money so quickly instead if people are eager to put that money in humanitarian efforts the world would be a better place with less hunger and poorness. But human greed it seems just wired into genes.

[Jaya912]

I read all of this word carefully to understand how to decide good ico or not but i still can not do. Since there are many of them offer a good thing but they just scammers. But thanks for sharing this thread.

[Mzai620]

i think they is 4 type of ICO money grabers.
There is a lot of ICOs in space that will rapie you.
Have you heard of PRESALE Cheesy.. own yea.
Now imagine sand ico and regular price was like 1.5$ per token but...
insider got deal like 0.25$ per token. Those gy got so cheap token becouse those groups will promote an shill for that ICO.
With such shit you can essy and with bag of shit.

There is always option that ICO creator will self invest in own ICO making it price looking much better tht it is in reality.
This is crypto here all shit moves are possible guys.

[thebitter]

Thanks

[ichanjay]

I just came across this thread:

How to create a ICO
https://bitcointalk.org/index.php?topic=2255274.0

It provides a link to an article and says that after reading it, you will learn how to find good ICOs. But the article is written by Crowdholding, which is hosting an ICO.

Read my thoughts on Crowdholding in a comment above.

What can you say about vibehub and eloplay? Thanks for your response

[arcfaith]

Great output! Thanks for the informative info!
Too many people have seen ICOs rising few hundred percents and in the rush to follow suit a lot of them do not research that thoroughly, thus falling into scams ICOs in the end!

[Rebellious]

Very nice and instructive post, thank you!

[Oakey22]

Thanks for this, it was a very good read and highlights some very important issues.

[Ric8]

thanks for the info

[Emworks]

You made a lot of point, this are useful information that need to be keep as a reminder for all of us..i truly believe that most of ico fall in that 3 category and i think wide regulation in every ico project must be implemented and this is the right time were the cryptocurrency are on its peaks time.
Theres no doubt blockchain technology are great.but lot of start up right now are completely unrelated to blockchain industry, everything they build are there just to make money and no value at all.

[Champ1]

Great post, there needs to be more information like this out there for retail / new investors in the crypto-space.

Too many vulnerable people are being hit with scams.

[loty1825]

How about Genesis Vision mate?

Genesis Vision’s team is from Russia, which does not have extradition agreements with much of the world. This means that if they screw you, there is little you can do. Do not expect the Russian government to extradite the team to your country.

They have a nice rating from icorating.com. However, I’ll always have a question in the back of my mind: Did Russia pay off icorating to give a better rating to Genesis Vision? But, I could be wrong.

Their project is very specific to forex trading. The team claims to have experience in this in St. Petersburg. I didn’t know that St. Petersburg was a major forex trading center. I would’ve thought of London, New York, Paris or Frankfurt. If you understand forex trading and you think that Genesis Vision can execute, then you should invest. For me, I see the execution to be very difficult. They would need a large budget for marketing and outbound corporate sales force to get forex traders to sign up to their program. If the traders are already performing well and making good money, why would they want prospects (potential clients) to be able to scrutinize them more through Genesis Vision?

If I was a forex trader, I would wonder why I would want to sign up to Genesis Vision, in order to be scrutinized by prospects and compared to other traders. Genesis Vision will tell me that I will get more clients. But I will agree only if I’m a better than average trader. If I'm a below average trader, Genesis Vision will show this to all of my clients, which will prompt them to leave me to go to an above average trader.

This is what I think will likely happen, though I do not know for sure. Let’s say there are 100 traders in the world. If you are among the top 50 traders, you will sign up to Genesis Vision. If you are among the bottom 50 traders, you will not. Now, there are 50 traders using Genesis Vision. After a while, the bottom 25 traders will drop out because they don’t want prospects to see how they are underperforming. Now, there are 25 traders using Genesis Vision. After a while, the bottom 12 traders will drop out. If this trend continues, there will only be one trader using Genesis Vision.

I stopped reading their white paper after this. I do not know for sure that Genesis Vision lacks potential. I do not think they are scamming. I just think they have a flaw in their idea, I don’t see the potential and I think the execution will be difficult. Others may think differently. Maybe the rest of the white paper has good stuff that I didn’t read.

Also, I'm not sure why a new token is needed for this. Any competitor can create a similar system and charge clients in USD, EUR, YEN, BTC or ETH. The competitor's pitch can be: "Why bother going through the hassle of getting a new Genesis token that is used only between you and Genesis, when you can simply pay us with USD, EUR, YEN, BTC or ETH? What are you going to do with your Genesis tokens after you get data about your trader? Is it a one time use?"

Also, their white paper is very complicated to forex. If you read it all and fully understand their business, then you should invest. Otherwise, reconsider.

Of course they need to spend some money to pay for ICOrating listed on top.
You also know most of the ICO reviews are make money from this thing and ICOrating is aslo no exception.

It's obivous they spend money on advertising. Not only on ICO rating sites, they also pay youtubers and statistics of their website show they also use every possible way of advertising including news sites, display adds, e-mails, social media. I don't think that's but neccessary for successful ICO. There are legit projects out there that will fail to collect enough funds just because noone knows they exist. So I think investing in marketing is important.

Forex is very tough market. Estimates are only up to 5% traders are able to make profit long term. And not all of them are managers. It think most managers would lose their clients if they used Genesis Vision or not just because clients would leave them because of bad performance anyway. Making bad performance of managers transparent is actually good for their clients. It would make competition between managers tougher and only those who would be best of the best would remain giving clients top notch performance on markets, probably much better than an average client receives now. that might be one of possible scenarios too. But noone can know for sure what will happen with the project. Will they succeed to deliver? Will their model realy work? There's many things that could go wrong with every project. All startups even those funded by VC have more than 90% chance of failure and ICO's aren't any different. So investing in long term is very risky. But Genesis Vision at least seems legit and serious project that is trying hard to succeed and stand out of the crowd of below average ICO's. I think investor has still some chance investing in such a startup, but investing in some crappy unserious project he has no chance at all.

I think many people investing in ICO's aren't in for the long term profit anyway, but looking for quick profit after an ICO is listed on exchanges. They also managed to get some kind of permit so US citizens can participate. There's hardly any such ICO so I expect this will bring in a lot of investors from the US. And I think Genesis vision is marketing themselves well, they already have arrangement with their first exchange and they're not crappy project. This seem very good combination for some quick profit and they probably won't have trouble reaching hard cap.

About the tokens. They probably could have done the project without issuing their own tokens that's true. But then they couldn't make their ICO, they would have to get funded the harder, slower and more expensive way gathering VC funds. Many projects collect their funds this way. I know many people think that's bad. But I don't think that's always the case. It can be good business decision. Why would someone company choose to spend more resources than they have to achieve their goal. Well there are ICO's that incorporate tokens in their projects in a stupid way like CarTaxi for example, that makes their model worse than if there were no tokens at all. But I think Genesis Vision use of tokens makes at least some sense and doesn't hurt operation of the platform. And it also gives us opportunity to invest with possibility of quick profit (mind this is not investment advice or prediction, it's just my humble opinion). If they took the VC root we wouldn't even have the possibility to invest.

[jlp]

Rega Crowdsurance is trying to mislead you.  Their website state:

“We all heard about shared economy: people sharing cars, home, bikes, even wi-fi. But why can’t we share our risks and protect each other without insurance companies. We have to pay lots of money because only insurance companies have algorithms for risk assessment, technology and resources.”

Currently, few cars and homes are shared. Cars and bikes are parked and unused 90% of the time. Therefore, there is an opportunity to increase utilization by sharing them. This is not applicable to insurance. Risks are already shared with insurance companies. There is no such thing as a risk sitting on your driveway, waiting to be used. When you buy insurance from anyone, you are automatically sharing the risk.

The way to reduce the money you pay, is to increase competition. There are already tens of thousands of insurance companies and there are bankruptcies (insolvencies) every year. Google it. They go bankrupt because they are NOT charging the customers enough to cover the risks that the insurer is taking on. This implies that customers can be paying too little already.

A crypto currency speeds up and lowers cost for bank wire transfers. A crypto currency eliminates the high cost and multi-day withdrawal from gambling sites. The key to success in insurance is not related to the currency. A new currency does NOTHING for the insured nor does it improve an insurer’s operating costs or COMBINED RATIO, which is one factor to profitability.

Their white paper states:

“That’s why leveraging our 20 years experience in risk assessment and scoring we are creating REGA Risk Sharing platform - the new standard for insurance market with state-of-art technology that will be available for everyone as a new segment of the shared economy.”

Does Rega Crowdsurance think that their 20 years experience in risk assessment is superior to Berkshire Hathaway’s 60 years experience in risk assessment?  Even though AIG has 100 years of experience in risk assessment, they almost went bankrupt.

What makes Rega Crowdsurance think they know more than anyone else in how much to charge you to insure your car against the next accident?

Even if Rega Crowdsurance thinks they know risk assessment, there is another major factor to profitability:  KNOWING HOW TO INVEST. Let’s say you are an insurer and you collect $100 million of premiums, which is called the PREMIUM POOL. You won’t have any claims until the next hurricane. What you do with the premium pool is critical. You cannot let it sit there to collect dust. You have to invest it. Where and how are you going to invest it? Quite often, insurance companies lose money from underwriting (risk assessment) and make up the loss from their investments. The majority of profits for Berkshire Hathaway comes from how the premium pool is invested. What makes you think Rega Crowdsurance knows how to invest?

Their white paper states:

“Compared to traditional insurance, in crowdsurance there are no insurers, intermediaries and brokers, all the processes being controlled and managed by programs and algorithms.”

Yes, there are insurers: other users. GEICO has had no intermediaries nor brokers for 70 years. Other insurance companies exist without brokers.

If you are a Rega Crowdsurance user, you will be an insurer or insured. If you are an insurer, are you going to go through the hassle of complying with the multitude of state government regulations on insurers?

If you are an insured, is the state government going to make sure that Rega Crowdsurance is properly capitalized so that they will have enough to fully reimburse you and all of the insured when your cars are destroyed?

Their white paper addresses regulations by stating this:

“We ensure regulators to comply with all necessary procedures including identification of platform members, working according to current jurisdiction legislation. Internal policies are designated to prevent and mitigate possible risks of the platform being involved in any kind of illegal activity. REGA Risk Sharing adopts risk-based approach to combat money laundering and terrorist financing. The principle is that resources should be directed in accordance with priorities so that the greatest risks receive the highest attention. Upon request of regulating authorities we disclose all information concerning the case, if that information can not be found in public blockchain.”

Most of this is verbose. The rest is misleading. Regulations of insurance is not related to illegal activities or money laundering. They are there to make sure that the insurer has enough money to pay all of the claims.

Rega Crowdsurance is extremely is extremely high risk, unless it is being started by former executives of GEICO, State Farm, etc.

Also, they are in a country without extradition agreements. If they screw you over, they are immune from punishment from your government. This makes them more invulnerable and likely to make any claim they want.

[hownowbrowncow]

Thanks jlp for this post. Really helped me rethink my investment strategy with a much better understanding of what to look for in a successful coin.

Much appreciate.

[CarlJohnson89]

Thank you for this post!