Red flags include plagiarised white papers, fake execs, over-promised returns and more.
As we reported recently, there is something of a cryptocurrency gold rush underway and, while optimism is high, there are plenty of pitfalls to watch out for.
An analysis of 1,450 initial coin offerings (ICOs) by The Wall Street Journal has found that 271 have red flags, including plagiarised white papers, fake execs and over-promised returns.
According to the report, investors have poured more than $1bn into these 271 offerings alone. It is understood that investors have already claimed losses of up to $273m on these dodgy ICOs.
ICOs give investors a chance to buy into new digital tokens while giving entrepreneurs easy access to funding.
Powered by the blockchain, cryptocurrency is a compelling industry to watch, especially the fluctuating currency bitcoin as well as others, including Ethereum.
But, while the majority of ICOs appear to be genuine efforts to build something new and tangible, the velocity of the ICO trend and the rise of coin fraud in its wake have given many pause and reason to liken the trend to the Dutch tulip auctions of the 17th century or the dot-com bust of 2000.
But how easy is too easy?
According to the powerful US Securities and Exchange Commission (SEC), ICOs have generated $12bn in total revenue so far in 2018.
The SEC has even created its own ICO webpage to promote the fake HoweyCoin as a way to educate potential investment victims on obvious scam offers. The HoweyCoin takes its name from the 1946 four-part Howey test to determine what qualifies as a security.
In its own investigation, The Wall Street Journal is understood to have found widespread plagiarism in 111 projects’ white papers, with marketing plans and technical features copied word for word from other sites.
Real executives have found themselves on these fake white papers or prospectuses. For example, one Polish veteran banker called Jenish Mirani is even understood to have found his own profile picture used to portray the CEO of an online payment project called the Denaro.
We are still only at the dawn of the blockchain era and there is evidence that the blockchain platform is on the cusp of breaking into the mainstream.
Are cryptocurrencies an essential part of that narrative or do they distract from the real potential of the blockchain?
Only time will tell if cryptocurrencies are fair game, a fad or an avenue for fraud.
In the meantime, let the buyer beware.