
Avoiding being scammed in ICO “pump-and-dump” schemes - mustafabisic1
https://venturebeat.com/2017/08/26/the-ico-world-is-full-of-pump-and-dump-schemes-dont-be-a-victim/
======
Apreche
How to avoid being scammed: completely ignore the world of "coins" and other
nonsense.

~~~
sodafountan
That's akin to saying in order to avoid the dot-com crash you should avoid the
web in 1997.

~~~
kaffeemitsahne
Not sure what you and sibling comment are getting at. Noone is forcing you to
participate in cryptocurrency ICO's, just like noone was forcing anyone to
participate in dot-com stocks back in the day. In both cases it was perfectly
avoidable.

~~~
sodafountan
Well obviously, but if you don't see the value of the blockchain and the
technology behind it then you're on the wrong site my friend.

I'm saying that it's always better to get familiar with new technology at the
earliest point possible. To "Completely ignore the world of coins" would be
kind of stupid and shortsighted don't you think?

~~~
adrianN
I think they meant "ignore the world of coins as investment vehicles". You can
inform yourself without putting your life savings into some ICO.

~~~
sodafountan
"Completely ignore the world of coins" doesn't leave much room for
interpretation.

------
sodafountan
Ah the dot-com bubble 2.0. I think it'll go down in history as the crypto-
crash because that's cool to say.

But seriously this is exactly what happened in the late 90's during the rise
of the web. There is real value in Bitcoin, there is real value in blockchain
technology. There probably isn't any value in PETCOIN or AOLCOIN if you catch
my drift. Smart investors who can stomach risk can make a lot of money over
the next few years before all the shit hits the fan. Gotta love irrational
exuberance.

~~~
api
No, this is substantially worse than the late 90s.

In the late 90s there were a lot of very premature IPOs and a lot of money
raised for bad ideas, but very few of them were total cranks or scams. I could
in fact buy pet food on pets.com-- it just wasn't a viable business and wasn't
well executed. The CueCat was a horrible business idea but CueCats actually
did exist and you could in fact use them. (I used to have one! Kept it for teh
lulz.)

Most ICO projects are complete and utter vapor consisting of nothing more than
a stock bootstrap web site and a "white paper" that could have been generated
by a Markov chain model using crypto and decentralized systems buzzwords. A
few have a bit of code online that doesn't work. Of those that have shipped
most of them are unusable, and of those that are usable I am only aware of
maybe one or two that are at all interesting. Of those none are very
compelling and none are things I couldn't do without.

There are literally no hits in this space. It's _all_ junk, and most of it is
outright scams. I'd be surprised if a single current generation coin ever
actually delivers _real_ ROI.

It pains me to say it too. This stuff is very much in the "I want to believe"
category for me. But I've gone through them and that's what I see. It's
depressing.

We've discussed an ICO here at ZeroTier and I've consistently come up against
it. There is so much fraud here I don't want to go near it even if there might
be good use cases. A lot of capital is sloshing around but I have both ethical
and pragmatic problems with participating in a system so absolutely rife with
fraud. I also don't particularly want to deal with SEC investigations.

Cryptocurrency on the other hand is useful. We have used Bitcoin to pay
overseas contributors for open source work and consulting. The function for
which block chains have become most known is so far the most useful and real.

The only upside is this: I find it satisfying that the scammers are gaming the
"serious math/CS papers must be written in TeX" heuristic by writing their
buzzword salad white papers in LaTeX. I _hate_ lazy prejudiced heuristics like
that.

~~~
sodafountan
I can agree with that. There isn't a whole lot of utility in individual ICO's.
However if you look at ICO's in general the concept is pretty remarkable,
ICO's essentially facilitate the "move fast and break things" mentality of
Silicon Valley. If ICO's work over the next 10 years (after the crash and into
the future) that's a pretty great tool that Silicon Valley now has, they can
now surpass the SEC and having the burden of pleasing investors and most
importantly posting quarterly profits and still raise all of the money that
they need.

This goes back to my original point that there is value in cryptocurrency and
the technology behind it. It's just going through a period of explosive
interest and growth, which in turn is causing the technology to get better
rapidly.

The multimillionaire investors are going to be made over the next 3 years. The
next google could come out of an ICO in 10, it's just a matter of the market
correcting itself once the hype wears off.

~~~
jetti
The SEC has ruled that some coins in ICOs are actually securities and are
subject to the SEC rules[1] so they aren't going to really bypass the SEC at
all. It's just a matter of time before things get ugly.

[1][http://fortune.com/2017/07/26/sec-
icos/](http://fortune.com/2017/07/26/sec-icos/)

------
coolio222
A pump-and-dump scheme drives the price up by promoting the commodity only to
allow insiders who bought it earlier to sell when the price peeks just before
the the price plunges again.

You can easily see it in penny-stocks and/or OTC-stocks. The price stays flat,
then peaks, then crashes to about the pre pump-and-dump price.

I haven't seen such a behaviour in any of the new coins. Does anyone have an
example or link to a chart?

~~~
api
The scammy ICOs (which is most of them) aren't really pump and dumps. They're
more like variations of the "big store" and other phony front investor scams.
It's more like outright stock fraud. They're selling shares in something that
doesn't exist and isn't going to exist.

~~~
snarf21
I think this is biggest difference. Selling things that there is no _real_
intent to actually make the systems. The other issue is that a real company
could get sued and you'd be able to track the real assets bought with the ill
gotten gains. With these ICOs, I'm not sure how you track the money to even
know who to sue.

------
erikb
Just to provide more options to the discussion and because nobody has
mentioned it: Have you considered that all ICOs are a scam of some sort? Or
that you can participate in scams and still end up being a winner?

To get the noodle baking about the first part: The goal of every public
offering is to make more money than what the stuff you're offering is worth to
you. Of course it may have more value to other people for different reasons,
but the basic idea is not to get the same value or less of what it's worth to
you. So to some degree an ICO always plans to take more than it gives.

~~~
quuquuquu
Ehhh the definition of every successful business is one that creates more
value than the sum of its parts. There has to be a consumer somewhere, and
consumers usually buy something with intrinsic value (you chop down a tree, I
buy the wood from you for my house.)

When there is no intrinsic value being gained, this means that the company is
really just a shell game, moving money around. Think poker. People are
voluntarily risking money, to play a game, to get someone else's money (and
some slight entertainment.)

So, if a business markets itself as one that is creating value ("we do easy
digital, global payments!"), but is really just moving money around ("buy our
ICO, get in on the ground floor!")...

then buyer be aware :)

~~~
erikb
I like your way to define it better, because it also provides an inherent way
of avoiding (more, probably not all) scams.

Don't buy stuff for the sole purpose of hoping for profit. Things you buy need
to have intrinsic value. The least thing you have is a logical reason why
someone else would buy it for more. And in that case early adopters of ICO-
scams are doing it the smart(er) way. Because they buy coins for less than the
offering price and can guess from marketing hype what they may get on offering
day for it.

~~~
quuquuquu
Absolutely, I do agree!

Buying something expressly for profit, but masquerading it as a business, that
= Herbalife.

Now, some people actually do drink Herbalife shakes, but usually they are
doing so as a rite-of-passage to some kind of "next level of distributorship."

craziness, really :)

------
api
The irony of ICOs is that the very purpose nearly forbidden by the SEC and
other global regulators -- namely issuing securities of a company -- is the
most natural fit.

Nobody wants a domain specific currency. If I want to purchase services
whether it's from a company or from some kind of decentralized amorphous
protocol I want to make that purchase in fiat cash or some general purpose
crypto cash like BTC or ETH. I do not want to convert cash into some domain
specific currency. That's annoying and introduces complexity, breakage, and
market inefficiency.

------
chinathrow
A digital "growth" company is working within my vicinity and helping ICOs
success. I'm really having issues with that.

Regular crowd-funding mostly have rules about what you pre-buy. Regular IPOs
have tight rules and regulation on how, when and to whom you may offer.

I fail to see how and why we should tolerate these ICOs scams these days. A
lot of people will lose a lot of money.

------
kfk
I wonder if there is an opportunity here for an unbiased certification process
that ICO founders can request. Sort of like a Morningstar rating.

~~~
toast0
Here's my unbiased certification:

I hereby certify that all of these ICOs are crap. The world doesn't need
another highly frothy 'currency' with no underlying value, whose only useful
properties are some famous dude (or some guy on YouTube) says it's cool and
you can think you'll get in early like when you missed out on Bitcoin or
whatever.

~~~
kfk
What's the point of this comment? You know, this is exactly the same attitude
every MBA suit has towards any new startup, until it's successful of course,
then it starts praising them.

------
bubbabojangles
The worst schemes are the "Oh No, we've been hacked during our ICO, stop
sending those 'other people' your money!"

~~~
mhluongo
The crypto space is rife with inside jobs, but I think most of the ICO hacks
are real. There's not a strong incentive to run an ICO hack when you'd
otherwise just get the money without much accountability.

------
FreekNortier
This is becoming more of a problem. That's why I only stick to mining certain
coins.

~~~
erikb
Have you done any profitability analysis on these? When I checked in 2015 you
were losing about 20 ct on each dollar you invested.

To summarize the probably resulting discussion of this question: The profit is
probably in doing ICOs and offering business opportunities on top of coins,
not in mining the coins.

------
shepardrtc
Filecoin only has a whitepaper and a website, and they raised how many
millions?

------
debacle
Remember when people pretended bitcoin was a currency?

------
WhiteOwlLion
Who are the most recent scam coins?

------
Temasik
And everyone think EOS.io are doing ico

They are not, Dan bytemaster was around when Satoshis was active back then

------
Integer
How about a modern investment project in construction industry based on
blockchain technology? An ICO investment in the infrastructure of a plot of
land in Russia, which will make you a 300% return. Of course, All transactions
will be securely processed in Ethereum Virtual Machine and stored in a
blockchain – distributed database on numerous nodes around the globe.
Decentralized consensus gives Ethereum extreme levels of fault tolerance,
ensures zero downtime, and makes data stored on the blockchain forever
unchangeable and censorship-resistant.

