ICO scams are one of the biggest challenges to have rocked the cryptocurrency industry, greatly undermining people’s confidence in the nascent industry. While investors have become increasingly aware of these scams, fraudsters are still widespread and millions of dollars are still lost every year. According to the Wall Street Journal, over 18% of ICOs are pure scams, with many more also likely to fail. The research attributes the continued rise of ICO scams to investors’ appetite for “guaranteed returns” which makes them easy prey for fraudsters.
Over $1 Billion Invested In Pure Scams
The WSJ conducted an extensive analysis that involved 1,450 ICOs, of which 271 were deemed pure scams. Among the most common red flags were plagiarized whitepapers, most of which copied other, more established projects word for word. 111 projects were found guilty of this, with some having made minor adjustments while the programming language remained quite similar. Another common red flag was the non-disclosure of team members, including their credentials and past experience. Others sought to reassure their investors by listing supposed team members on their websites, but upon further investigation, it was found those people didn’t exist. In some cases, individuals reported to having had their photos and information used without their consent or knowledge.
The promise of guaranteed returns is another red flag that is present in many ICOs, one which the Securities and Exchange Commission has been consistently warning investors about. However, with many investors viewing the crypto industry as a get-rich-quick opportunity, the regulator’s pleas have fallen on deaf ears. The allure of ‘risk-free’ investment has seen many investors, especially the new ones who’ve jumped on the crypto bandwagon in recent years, invest their money in the hope that their project will become the next Bitcoin or Ethereum. Over $1 billion dollars has been collectively invested in the 271 ICOs that the WSJ labeled as scams. The report identified hundreds more whose chances of success were quite slim, based on their whitepapers, online activity, and teams.
A Disservice To The Industry
While some choose to ignore the plight of investors who continue to invest in projects that bear many red flags and end up as victims of ICO scams, the reality is that these scams have a much larger ripple effect on the industry. With millions being lost every so often to these scams, the crypto industry continues to get bad publicity which hinders its development and its adoption by mainstream users. The SEC has continued to lead the government’s efforts to protect investors, with the regulator going after and stopping some of the scams including Arise Bank and PlexCorps.
Recently, the SEC developed a pretend ICO scam website to show investors what to look out for in order to avoid being scammed. The fake project, HoweyCoins, promises to transform the travel industry through the blockchain. Once an investor decides to buy the tokens, he is redirected to a page that lets him know he or she could have been easy prey for scammers. This new and creative effort by the SEC might have a more surreal effect on investors as they realize just how easy it is to get scammed.