Why not all ICO ”scams” are truly “scams”

Jul 9, 2018

Are all the unsuccessful ICOs “scams”? The answer to this question is not as simple as it seems at first.

On the one hand, investors, who have put their money in ICOs, consider any project which has not justified their expectations and hasn’t brought profit to be a scam. Simply because they (investors) have lost the money.

But if we try to analyze this situation somehow and separate true swindlers from failed projects, such a general definition is obviously not enough.

The majority of experts agree that there are two kinds of scams: some initially planned to dupe the investors, the others simply could not get started. Financial pyramids, which live off the investors’ money, and fakes belong to the first type.

The classical example of a fake — the eros.vision project, a decentralised marketspace for the adults’ goods and services. The idea so was pleasant to investors that the project raised 20 million dollars only for the swindlers to claim having domain problems and postpone the platform development and then to delete the accounts from social media and disappear. The project turned out to be a fake, beginning from the domain, which had been bought one week prior to the ICO start, and finishing with fake team members.

Projects which were not meant to deceive anybody are (wrongly) named among scams due to several reasons:

  • Hacker attacks — that is, as a result of breaking into the founders’ accounts, e-mail and wallets.
  • Management problems — when a project can not launch a product owing to a discord in its team or simply because of inept management. It is typical of all startups.
  • ICO failure. The projects, that did not manage to collect sufficient sums during their ICOs, often do not live to see their listing and the issued tokens turn out to be absolutely worthless.

A failed ICO

According to the opinion of the co-founder of the CoinPlace cryptomarket, scams, as a rule, are small projects which raise about $300 000–800 000.

On the one hand, it means that now the majority of scammy projects are detected during the early stages, thanks to which they simply have no time to collect large sums.

On the other, their numbers can include ICOs that simply failed. (I cannot imagine that 300 thousand dollars is enough to create a fully working business and an IT product).

Of course, properly speaking, the projects which flopped their ICOs and realized that they couldn’t create a product with the collected funds should return money to the investors, but if they do not do it, they are labelled scams, although it was not their initial purpose.

Very often people in mass-media and topical forums use the word “scam” to attract attention. People like to read about scandals, and the word “scam” in clickbait headings works like a red rag to a bull. But actually this mix-up in terminology prevents looking at the situation objectively and estimating the real number of fraudulent ICOs.