The crypto market is worth $2.48 trillion. You hear about people who became rich overnight after making small, impulsive investments with little or no knowledge of cryptocurrencies. They feel left behind and decide to invest as well.
How can you do that without falling for one of the many scams? How can you tell which project is reputable and which is not?
In this article, I will help you understand what to avoid when choosing your ICO rollout investment and the many risks involved. We will also go over the famous Giza Device scam, where people lost over $2 million.
Successful scams in ICOs
You should be on your guard whether criminals try exit scams, fake URLs, or whitepaper scams. Do not invest money in hasty advertising, attractive but unrealistic projects, or teams with fake social media accounts.
In this article, we will take a look at two popular scams that were unfortunately successful:
- MinaProtocol, a scam with a fake URL website from 2021
- Giza Device, a project that raised more than $2 million and turned out to be a scam in the end
What is cryptocurrency?
- What is blockchain technology?
- What are crypto tokens?
- What is an ICO?
Cryptocurrency is a digital currency used to pay for services and goods. Some cryptocurrencies are stronger, while others are more volatile.
Some popular cryptocurrencies are Bitcoin, Ethereum, Cardano, Dogecoin, Stellar, and Classic Ethereum. Statista.com says the total market value of cryptocurrencies as of June 2021 is $965,077.65 billion.
What is blockchain technology?
Cryptocurrencies are based on public blockchain technology. Blockchain technology is an immutable, decentralized method of storing and conducting transactions on the Internet.
In this form of storage, records or transactions are stored in blocks chained together by links formed by their hashes.
The blockchain is immutable because if someone were to change one of the blocks, all subsequent blocks would have to be changed, which is almost impossible so the malicious attempt would be invalid.
The blockchain is decentralized because the data is stored on all participating nodes, so there is no single point of failure. An attacker would have to modify more than 51% of the blockchain to modify the blockchain, which is computationally impossible if the difficulty level is high enough.
What are crypto tokens?
Crypto tokens are special digital coins usually used to raise cryptocurrency funds. They are tradable and fungible assets and reside on the existing blockchain rather than having their own blockchain, like crypto coins.
What is an ICO?
An ICO (Initial Coin Offering) is similar to an IPO (Initial Public Offering) and is designed to help a company raise money to create a new cryptocurrency. It is a method of raising funds for a new project, usually in the cybersecurity industry.
During this process, investors can buy tokens or other company shares to raise the required funds, which must be raised within a limited timeframe. If the requirements are not met, investors will get their money back. If the campaign is successful, the project will continue.
This part of the process is where it is most difficult to tell if the company you are about to invest in is reputable and not simply stealing your money. There are numerous scams related to ICOs, which we will analyze in the next chapter.
Examples of cryptocurrency launch scams include the following
- MinaProtocol
- Giza device
There are many ways in which ICO rollout scams have been carried out. We will examine three common scams because you should know them to protect yourself. We will also look at some real-world examples.
- Exit scam. ICO founders wait for investors to raise money for the project and maintain a facade to appear legitimate. At some point during the process, the entire team disappears and takes the money with them. The Giza Device project is an example that earned the criminals $2,000,000, which I will analyze in more detail in this article.
- Fake URL scam. This has nothing to do with the founders of the ICO. Scammers create fake websites with similar URLs and promote them on unofficial social media channels like Telegram and Discord. As you will see below, MinaProtocol is the perfect example of this, as it also successfully stole investors’ money.
- White paper scam. This document is supposed to reveal the company’s intentions and provide valid information about the project, its main goals, etc.
In this type of scam, a company steals the white paper of a legitimate project to lure investors to trust it. A very powerful and well-written white paper can make your project look very credible.
Not convinced yet? Here are some examples of ICO scams that have actually taken place and tricked people into paying as much as $5,000-10,000 without ever getting their money back.
MinaProtocol
Scammers took advantage of this cryptocurrency, and in April 2021, a message circulated on Discord about an urgent sale of tokens for MinaProtocol’s ICO.
The message urged readers to buy before the three-hour expiration date. Upon visiting the website, the unfortunate investor would pay the desired amount without ever seeing the money again.