In the second post of this series we look at ICO scam white papers and code repositories.
The White Paper
A white paper is supposed to present a problem and a proposed solution. That’s what the original Bitcoin white paper was. As the ICO market has evolved, white papers have also evolved into marketing documents that include ICO teams, roadmaps and details about token distribution.
Many fake ICOs have jumped onto this trend, and created very slick white papers. These documents tend to focus more on how amazing the opportunity is and try to include as many buzzwords as possible, rather than focussing on the problem and the solution.
- Returns: If a white paper refers to the amount you can make by buying the tokens, you should run a mile. This actually goes for most investments. Apart from investments that offer monthly returns that are close to what you can earn from a bank account, no investment opportunity should be advertising the amount you can make. And, if the returns are guaranteed you should be even more suspicious.
- Plagiarized text: Many ICOs, both fake and legitimate, have been caught plagiarizing their text from other projects. You can copy a few sections of the text, especially the very technical parts, and do a Google search on it to see if it has been used elsewhere. If the text appears to have been plagiarized, it doesn’t necessarily mean the project is a scam, but it does mean you should be a little suspicious and do some more digging.
- Language: If an ICO claims to be based in an English-speaking company, the language and grammar in the white paper should be perfect. Often when an ICO is based in a non-English speaking country there will be grammar mistakes, and that’s understandable. But if the project is based in an English-speaking country, or if team members have supposedly attended English universities, it shouldn’t come across as though the writer doesn’t have English as their first language.
- Detail: Fake ICOs tend to avoid going into any detail about how they solve a problem. If they do touch on their ‘solution’ they will claim to have developed revolutionary technology, but again won’t go into detail. When you read a white paper, you should be able to clearly understand the problem the team is trying to solve and how they propose to solve it. You should also understand what their USP (unique selling proposition) is.
While most fake ICOs will create a whitepaper with lots of promises and little detail, some will go to the other extreme and include lots of technical jargon to confuse investors. If you don’t understand the technology yourself, the only way you can tell if its legit is to see if someone you know or trust has vetted it.
If a project claims to be open source – and most blockchain projects do – they should have a code repository on GitHub. If you can’t find a repository, or if it is empty, you should be very skeptical of the project.
However, activity in repositories can also be faked. Scammers know that many investors will look to the code repository, and therefore engineer the impression of regular commits and edits. If you know much about programming, you will be able to pick this up quite easily. If you don’t, you can get a programmer friend to have a look, or you can see if anyone on Reddit has had a look at it.
There are several websites, including ICOCheck, that list fake ICOs and some of their red flags. These can be useful, but they are not able to properly vet every ICO around. You will always need to do your own due diligence to be sure.
In the next and final post, we will look at more subtle scams, and ICO business models that are not outright scams, but need to be treated with caution.