As innovative as they are, Initial Coin Offerings (ICOs) don’t always result in the simple democratization of venture capital they’re promoted to be. Navigating the market can be difficult for both amateur and seasoned investors alike, given that the knowledge required to make adequate assessments stems from fields as diverse as cryptography, game theory, economics, and law. More so, due diligence processes require inquiries that are not done easily online. The existing knowledge gap and the amount of inaccurate information is often exploited by bad actors. Hence, the ICO market is teeming with exit scams that take advantage of unwitting investors.
Fake teams and advisors
Most of these schemes work because the ICO market remains mostly unregulated, especially when compared to traditional financial markets. For instance, listing an IPO can take years in many cases as it requires companies to disclose financial records to the public and get approval from official regulatory agencies. In contrast, there is still very little government intervention on ICOs. Although the same securities regulations still apply in the US, any supposed startup can launch the process with little accountability. More importantly, they can do so without any scrutiny placed on the group of people behind it.
For ICO investors, one of the best ways to judge the potential success of a new blockchain project is to evaluate the team that is working on it. However, without the availability of official certifications on the reputability of these people or the legitimacy of their operations, it is very easy for dishonest initiatives to infiltrate the market. The result has been a tide of projects that market themselves on the back of fake teams and made-up advisory boards to lure in unsuspecting investors. This practice has become an effective go-to strategy for scammers.
How do they pull it off?
An ICO with a flashy website and a few name-drops might be enough to pull off a scam against the average person. The reality is that it can be hard for even a blockchain enthusiast to tell the difference between a legitimate ICO and a fraudulent one.
Information listed online has always been very difficult to verify. Any project can claim to have stellar team members or important advisors. They might even link to existing LinkedIn or Twitter accounts, and there is usually no way to verify whether or not these are impostors. Furthermore, it’s quite easy to create fake skillsets on these platforms without having to provide proof of genuine qualifications.
Besides predatory attitudes towards investors, this lack of verification has created a significant obstacle for legitimate blockchain projects looking to raise funds. Most get jumbled up with the nearly 80 percent of ICOs that were labelled as scams in 2017. Thus, the situation is having a negative impact on the market’s potential. Fake advisors, specifically, remain all too common in the ICO landscape.
Example – the Miroskii ICO
Miroskii is one of the most well-known ICO scams to date. This fraudulent project was able to raise over $800,000 in funds. For ICO investors, it’s crucial to understand the details surrounding this project. This can help prevent potential investors from falling for a similar scam in the future. The following paragraph was taken from the Miroskii website.
“Miroskii Coin is developed and brought to business by the experts from China, Hongkong, Singapore and Japan to ease the crypto revolution in financial products. It is developed under its own highly secure encrypted decentralized blockchain technology. Miroskii coin is been tested, approved and accepted by most of the industry giants who has already started using the MRC (Miroskii Coin) in their closed B2B sector. As per the high demand from these industries we were requested to start the first ICO stage for intuitional companies only. The first phase ICO will be successfully completed by selling 1 Million coins. Then we will open the doors for individual investors to participate in the 2nd phase of ICO. We would have total 6 phases in the ICO. Its time to be a part of the Crypto Revolution. Miroskii Coin your Own Decentralized Bank [sic].”
This paragraph is quite attractive as it includes a lot of buzzwords and isn’t that different from what legitimate ICOs might include on their websites. Additionally, potential investors get the sense that Miroskii is a global project working on an innovative market solution. For some investors, this could be convincing enough to make an investment. However, this shouldn’t be the only criteria that an investor considers.
A look into Miroskii’s team
While the project background is somewhat convincing, the ICO team section should have signalled an enormous red flag for investors due to the following reasons:
- Not a single member of the pictured team on the website existed.
- The profiles were pulled from a database of stock images.
- Each profile was given a fake name.
- One of the fake profiles was Hollywood actor Ryan Gosling, who Miroskii claimed was Kevin Belanger, an experienced graphic designer.
Despite creating an entirely fake team, Miroskii was able to get away with the exit scam. While this responsibility is ultimately up to the investor, it’s unfortunate that many other ICO websites in 2018 still look quite similar.
Uncovering a case such as Miroskii could be simple for some investors. For others, it can be a difficult task. With the increasing number of ICO-related scams, the task of differentiating between a scam and a legitimate project shouldn’t be complex or time-consuming. However, this is often the case.
What to do about it
It should be no surprise that this problem worries the blockchain community. Many have proposed solutions that improve the quality of information available to investors and provide some sort of accountability to the claims of teams launching ICO. Some of the savviest of these employ blockchain technology itself as an attestation protocol that verifies online professional profiles. This could well become an important boon to both market participants and legitimate projects. Going forward, it might be a good idea to look out for projects that implement blockchain-based verifications to their listed team and advisory profiles.
Kartik Mandaville is the Founder and CEO of SpringRole.
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of YourStory.)