5 Memorable ICO Scams

Vlad Costea
  • While ICOs can turn you into a Borgias for a Michelangelo who's going to paint the blockchain equivalent of the Sistine Chapel, there are still plenty of scams that damage both your wallet and the reputation of this way of financing start-ups.
  • Always make sure you're investing in a legitimate project: read the whitepaper and scan for excessive buzzwords, check out the developers, try to envision the purpose and use of the project, look for the opinion of rating websites, and inquire about a trusted escrow company.

So you've finally decided to make use of your hard-earned Ethereum (ETH) coins by converting them into the tokens of a promising initial coin offering (ICO). It's a great way for you to become a patron, somebody who sees potential in a project and helps it reach its goal. You may think that you're some kind of modern-day Borgias who's found his DaVinci, Buonaroti, and Raphael in a crew of software engineers whose vision had been written in a whitepaper.

If the project is truly legitimate and meets your expectations, you might just get rich off of HODLing those sweet tokens. Nevertheless, you must be cautious and completely aware of the fact that the odds are stacked against your idealistic expectations and the number of successful ICOs is disappointingly low.

That's why we thought it would be a good idea to make a short list of scams and big disappointments, just so you know what to expect. The "invest only what you can afford to lose" rule is definitely the Northern Star which must guide all of your moves in the space, and sometimes the difference between the next big top 10 token and the exit scam of the week is given by very elusive details and relative circumstances.

You can't always win, you can't always get what you want, and someone actually has to lose in order to create the next wave of crypto millionaires. And if you've invested in any of these, then you've definitely filled the bags and pockets of a selected elite whom you'll never encounter in your life unless you get exclusive access to some well-hidden luxurious island in the Pacific Ocean.

1. SaveDroid's South Park-Referencing “Gone Not Gone” Scam

The first ICO mentioned is also the latest to cause a buzz among the community, as the German team has pulled a nifty exit scam and ran away with about $50 million.

They promised they would build a savings app which would allow users to use their hard-earned money for AI-handpicked investments. Because really, the future belongs to competing trading bots (or droids) who make rapid financial exchanges based on the same algorithms that don't make mistakes, and thus don't move the markets at all. Sounds totally legit, right?

It was the general "too good to be true" project which also had included a cryptocurrency-funded credit card on the roadmap, but left the moment the ICO ended. Their departure message was as light-hearted as can be, as a South Park meme from the "Margaritaville" episode covered the front page of their website.

But wait, there's more to it and the entire story has a twist: after the company's CEO had hinted on his Twitter account that he did actually pull an exit scam, he returned the following day to provide some explanations.

As detailed in James McQuillan's article on our website, SaveDroid had only tried to show the world how easy it is to raise funds and run away in an unregulated market which doesn't possess the legal means to bring you to justice. To put it plainly, it was a scam about making a point on scams, and the SaveDroid leader promised he would work with authorities to create a fair framework for regulations.

Are they gone or not gone? Is there going to be a double twist to the entire story? It doesn't matter, investors are very upset and it's still unclear whether or not they will ever see their money back. Proving a point can cost $50 million, right?

2. Bitconnect X's Encore

Speaking of memes and occult bots which make trades with the users' savings, it's Carlos Matos' favorite ICO, because we all know he ‘LOOOOOOOOOOOOOOOOOOOOOOOOOOVES BITCONNEEEEEEEEEECT!’ Back in January 2018, in spite of all the warnings from reputable cryptocurrency experts and red flags, people still believed that Bitconnect was the perfect way to get rich quickly.

Trevon James did it, a 17-year old named Crypto Nick has become a millionaire, so why shouldn't everyone else get the daily 1 percent returns? There was no way for the system to turn out to be a Ponzi scheme like the hateful venom-spitting critics claimed to, right? They were probably jealous about the gains they didn't make.

Well, Bitconnect did collapse and people lost a lot of Bitcoin (which was the entry ticket into the system) just to keep on holding onto worthless tokens. But there seemed to be a safety net that users hung onto, because there is no way the same company would attempt a second scam: Bitconnect X was announced as an ICO in early 2018 and pretty much promised nothing other than being listed on CoinMarketCap!

The admission fee was $50 per token, and lots of BCC enthusiasts jumped right in, but the entire project crashed and burned just like its longer-lived predecessor. It's like that old saying "Fool me once, shame on you. Fool me twice, I LOOOOOOOVE BITCONNEEEEEEEEEEEEEEECT!"

3. Prodeum's Phallic Complex

The blockchain can have many revolutionary uses, and a team of Lithuanian programmers thought about involving the industry of fruits and vegetables into such a process.

 It all seemed legitimate and unique: their website contained a detailed whitepaper with a roadmap, the team’s developers had listed their LinkedIn profiles, and people on social media would post pictures of Prodeum's name written on their bodies.How could this go wrong? Well, the moment after the bags got filled with the Ethereum equivalent of $11 million, the website disappeared and left the project’s investors a wise message, which plainly said "penis".

Any link related to the developers had disappeared, and one of the alleged team members who got caught claimed to have been subjected to identity theft. So if it wasn't him, then who pulled out this scheme?Also, what about the Twitter believers who kept on posting pictures of their bodies labeled with the Prodeum brand? It turned out that they were just paid Fiverr users who were fulfilling the assignment for which they were getting paid. Now that's quite a fruitful collaboration.

4. The Obvious PonziCoin

If Dogecoin (DOGE) turned a meme into one of the most successful cryptocurrencies on the market, then why not push the envelope a little farther and pull off an exit scheme without even bothering to hide your intentions?

If Bitcoin and its many clones promised to create a fairer and more transparent world of finances, then why not make scams more obvious too? Some guy named Josh Cincinatti thought about a concept which openly mocks the entire ICO culture, but still demands for money in a serious way. His project isn't a pamphlet of the likes of Voltaire, but a real ICO which has open and brilliant rules: first of all, it never ends. Crypto investors often regret missing deadlines and those who organize exit schemes can't possibly miss their money.

Secondly, the entire pyramid is simplified so that only the selected board of elites gets that fat percentage. It also consists of one person, as Josh Cincinatti does everything in his company. It's ridiculous, it's hilarious, and it's the ICO equivalent of the guy who did a Kickstarter to ask for money just to never work a day in his life - except that it features a profound understanding of Ponzi economics and has an amusing whitepaper.

5. Benebit

If all the other examples were sketchy and contained small clues about the scammy nature of their projects, this one is of a different kind. Ironically, Benebit was all about customer royalty and promised to unite all the cards and programs under one blockchain umbrella.

 Do you go often to have meals at your favorite restaurant which has a benefit card? Do you buy medicines from that pharmacy which offers special discounts during the winter season for customers who want flu pills? Why carry multiple cards and make use of many separate platforms when there could be one to unify them all and provide a fast and reliable payment currency?

The project sounded great and had about 9,000 Telegram members. People seemed to be excited about the upcoming launch and the developers seemed legitimate: they provided LinkedIn profiles, passport pictures, and a whitepaper which seemed both brilliant and feasible.

 Even ICO Bench gave the project a rating of 4.1 out of 5, only to quickly remove it as soon as it turned out to be a scam! And yes, I've spoiled the outcome: Benebit turned out to be a brilliantly-orchestrated scam and the founders had closed down the website and everything in less than a day, leaving behind a Telegram group where people were distributing dank memes and suicide prevention numbers.

Benebit simply proved that you can never be too certain about ICOs and even the self-proclaimed experts and evaluators from the field can get fooled (or bribed). And while the tone of this article had been pretty humorous, losing money is no laughing matter.

Only invest in ICOs if you're ready to have a nasty surprise and simultaneously feel convinced that you've discovered a true gem. Scams have become pretty elaborate these days and people seem to throw their ETH coins irrationally in all directions, hoping that they will find a gold mine. Just buying Bitcoin at a low price and HODLing it for a few months is a much safer investment option in this space, but then again it's your money and you know best how you should be spending it.

Then again, this article is purely informative, and doesn't endorse any type of investment. You have to keep in mind that cryptocurrencies are risky and I am not a financial advisor (as a matter of fact, I've had my share of poor choices so I wouldn't tell anyone how to invest their money).

Is Initiative Q a Scam?

Kevin McCarty

Over the past month, a new project named Initiative Q has been making the rounds all over social media. Hailed as “a modern payment network,” created by “the founders of PayPal,” the hype for Initiative Q is real.

According to their Twitter, Initiative Q claims they’ve received 2 million signups. Taking a look at their Google Trends results, you can definitely say that Initiative Q is going viral:

google trends initative q.png

 

They’ve accomplished this buzz using the greatest advertising tactic ever - free money.

Initiative Q is using the viral marketing strategy of using referral links to drive traffic, and it’s working. I can’t go ten minutes on Twitter without someone spamming me their referral link.

People who sign up on Initiative Q’s website get free tokens, and their token allocation increases if they get their friends to sign up. Everyone and their mom therefore, is shilling this “cool new project.”

Due to all this hype, a lot of people have been asking: is Initiative Q a scam? The answer is...it’s complicated, but in this article I’ll do my best to explain what’s going on.

Airdrop = Scam?

First things first, let’s discuss airdrops.

One of the claims that Initiative Q supporters make is that cryptocurrency airdrops are a great way to fund their trading accounts.

Airdrops have become very common over the past two years in the cryptocurrency space. As ICOs look to avoid regulatory hurdles, many projects are deciding to give away their token for free (in an airdrop) vs. selling it in an offering.

In general, I agree that airdrops can be profitable. If strapped for cash, airdrops provide a great way for cryptocurrency beginners to get into the game. However, here are three big differences between Initiative Q and standard airdrops.

#1 - Initiative Q asks for your personal information (more on that later)

Many legitimate airdrops don’t ask for your information, because they don’t care. Since they aren’t offering a security, it doesn’t matter who’s receiving the tokens, and therefore submitting personal information is unnecessary.

Initiative Q, on the other hand, asks for your name and verified email address. Why?

#2 - There’s no ETH address required

Most airdrops work by collecting Ethereum addresses and mass-sending their token to people who sign up. This accomplishes their goal of getting the token into as many hands as possible, without the difficulties of an ICO or mining launch.

Initiative Q does not ask for an ETH address, so there’s really no way to tell how they’re going to get the tokens to you. It does seem like they’re launching their own chain, but this means that…

#3 - There’s no guaranteed trading liquidity

Getting a cryptocurrency listed on an exchange is not an easy task, especially when the cryptocurrency features a new blockchain structure that the exchanges are unfamiliar with. We saw this first-hand with Nano, whose block-lattice structure caused headaches for exchanges who were trying to add Nano to their platform.

Even if Initiative Q is not a scam, and they have a real functioning product, there’s nothing that assures you’ll be able to sell it. Thanks to network effects, Ethereum tokens can easily be bought and sold on a variety of markets, meaning even the scammiest airdrop can be sold.

With Initiative Q it’s not so clear.

Token Metrics

Every ICO investor knows that the first thing you should look at when investigating a token offering is its token metrics, i.e. how the token supply will be split up.

The reason token metrics are important is because they show how much the developer team can influence price. Believe it or not, there are ICOs out there who use their warchest to inflate prices and dump on their community. Could this be the case for Initiative Q? Possibly.

Digging into the data, Initiative Q’s token metrics are not terrible, but there’s still something fishy. They are:

80% - incentives (buyers, sellers, agents, contributors)

10% - Initiative Q payment company (ding ding ding)

10% - Q monetary committee monetary reserves

For all intents & purposes, that’s 20% reserved for the Initiative Q company. That line item should set off the alarm in your head: it’s a company. Companies exist to make profits. What better way to publicize your company than by giving away free money?

It’s possible that Initiative Q is a legitimate company, trying to make a CashApp/Venmo ripoff, and that this token is just their way of doing viral marketing. Since they don’t have a product yet, we can’t tell, so let’s continue by taking a look at their...

Crackpot Claims

The first thing that should set off red flags is the ridiculous claims on their website. Right on their homepage, Initiative Q claims that by signing up for their airdrop, you’ll receive $40,000. For reference, that’s about the average personal income for citizens in the United States.

Do you really think Initiative Q would be giving away an entire year’s salary, just for signing up on their website?

Now, in their defense, they’re not giving away $40,000 worth of cash. They’re giving away

$40,000 in projected future value of their tokens. Which makes me wonder...how did they come up with that outrageous figure?

Insane Valuation

This is where things get interesting. I decided to read through Initiative Q’s website and tally up how they got to their laughable $40,000 airdrop value. There’s a long description on their website, but here’s the summary of how they got there:

It is realistic to expect that such a network would eventually overtake credit cards, which account for $20 trillion in annual transactions. The total amount of money in the world is roughly half the annual economic activity. The value of all Q currency could thus reach half of Q’s annual volume (i.e. $10 trillion).

OK, so they think their cryptocurrency is going to be worth $10T. Putting aside the fact that this is larger than the implied value of all of the gold on Earth ($7T), let’s see what their supply is:

“Since there are currently 2 trillion Qs, the goal of one US dollar per Q is achievable.”

There we have it. Initiative Q expects to reach a market cap in the trillions, giving their token a value of bout $1. Does this seem plausible to you?

For comparison, let’s see how this stacks up to existing cryptocurrencies.

Today, the entire cryptocurrency market is worth about $205B. Even at its peak in late 2017, the market was only valued at $834B. Initiative Q is already overvaluing themselves, but let’s see how they compare to individual cryptocurrencies.

Right now, Bitcoin’s market cap is only $111B, and that’s as the number one cryptocurrency in the world. So, in order to reach 1Q = $1, the entire Q network would have to be worth 20x the Bitcoin network.

Sound plausible? 

Today there have been about two thousand competing cryptocurrencies launched, all trying to knock Bitcoin off the top spot. It’s highly unlikely that Initiative Q is able to do what altcoins have been trying to do for years.

It should be clear to by now that Initiative Q’s claims are silly, but why are they doing this?

Data Vampires

One reason that Initiative Q could be doing this launch is to collect data.

Prior to becoming a Bitcoin maniac, I used to work in internet advertising. I know for a fact that data is valuable, and advertising companies will gladly pay heaps of money for access to good lists.

The data collected by Initiative Q is some of the best around. Everyone who signs up gives a name, verified email address, and shows that they are willing to put in energy to make money (signing up takes effort).

These emails could easily be used to advertise get-rich-quick schemes, or even worse, scams.

“But Kevin, they say in their privacy policy that they don’t sell our data!”

Sure, so does Facebook. That didn’t stop Cambridge Analytica from scraping illicit data and using it to advertise during the 2016 election.

A privacy policy also doesn’t stop another company from using your data. If Initiative Q is sold to another company, they have every right to change the privacy policy right under your nose. There’s no guarantee that your data is private.

If you signed up for Initiative Q, I really hope you used a fake email like Nada or Guerrilla Mail.

Elon Musk Wannabes

One of the hallmark ways to identify a cryptocurrency scam is to take a look at the team. If there are no public team members, or none that have a track record in technology, it’s possible that the project is a money grab.

Browsing Twitter, you’d think that Initiative Q is from “the creators of PayPal.” Search “Initiative Q Paypal” and you’ll find some surprising claims:

initatieve q tweet.png

Wow, I didn’t know Peter Thiel & Elon Musk were making a cryptocurrency! Let’s take a look at Initiative Q’s website to verify these claims. There’s no “team” page, so we can’t see who’s coding it, but there is reference to their leader:

initative q quote.png

Saar Wilf is a real person, with a real LinkedIn page, but as you can see, he’s not the “creator of Paypal.” If you browse his work experience, you will find that he was the Founder & CEO of a company called “Fraud Sciences.”

Putting aside its hilarious name, it seems “Fraud Sciences” was a legitimate company, and that Saar was a director  at PayPal from 2008-2010. It’s possibly this position means nothing, as Saar could have been hired only temporarily after the merger to facilitate a smooth transition.

What about the technology?

Im in it for the technology.jpg

Vaporware

The nail in the coffin for Initiative Q is that there’s no product. Most ICOs or up-and-coming cryptocurrencies will explain how they plan to build their network. They’ll usually draw up a whitepaper, diving deep into the technical details about the economic revolution they’re about to lead.

What about Initiative Q? Nope. No product, no details, no specifications. There is a roadmap, but you might find this a bit disappointing:

initative ! launch.png

Initiative Q seems to be collecting your data so that they can put you on their network when it launches in three years. Hmm...in the meantime, maybe we can find some information about what they plan to do. There isn’t much, but we do find that Initiative Q claims they’re better than cryptocurrency:

This FAQ section continues to explain why Initiative Q is better than Bitcoin. Their reasons include price volatility, legal controls, irreversible transactions, and energy waste.

Any experienced Bitcoiner knows that these arguments are baseless FUD, but if you’d like to hear them tore apart one by one, Udi Wertheimer does a great job of dismantling these claims in this article.

Based on all the information I’ve seen so far, it seems Initiative Q is just another payment processor. Similar to PayPal, Venmo, CashApp, or even Facebook Payments, that will be a centralized, censorship-friendly payment app.

I could be wrong, but we won’t know for sure until their product launches...in 2021.

Final Note

To wrap up this takedown, I’d like to address not Initiative Q, but their supporters. Throughout my research of Initiative Q, I had a million conversations with Initiative Q proponents that ended the same way:

“Well….it’s worth a shot!”

Yes, it’s possible that Initiative Q is not a scam. It’s possible that they’re just a company orchestrating a brilliant viral marketing campaign, and there’s nothing wrong with that. PayPal, CashApp, and even Coinbase all offer referral programs (in real money) to attract new users.

My problem with Initiative Q is that it shows where people’s priorities lie. There are a million ways to make money in the world, especially in the cryptocurrency space, and it’s disappointing seeing so many people wasting their time on gambles like this.

Time is precious, and every second used by Initiative Q’s affiliates to promote this possible scam could’ve been used to do something that’s actually profitable. No one got rich playing scratch-offs. True wealth is created by learning skills and building businesses, not waiting for random internet companies to hand deliver you $40,000.

Disclaimer: this article shouldn’t be taken as financial advice and does not represent the views or opinions of CryptoGlobe