Crypto millionaire's tips for avoiding fraudulent ICOs
Successful cryptocurrency investor and entrepreneur Samuel Leach said the issue of fraudulent initial coin offerings (ICOs) is here to stay.
27-year-old Leach is the founder and CEO of Samuel & Co. Trading, a business he set up in 2012 using £200,000 of his own money earned through trading on the markets.
He recently launched a new social networking platform called Yield Owl for cryptocurrency investors and is also behind Yield Coin, the world's first multi-purpose backed cryptocurrency token.
Leach said due diligence should be a "pivotal part" of any investment process, especially when it comes to ICOs.
"The project white paper should be the first area to receive your attention," he said. "This is where the developers will outline their plan of action as to what they plan to build, and how they plan to do it.
"When looking through the document, consider whether the product they intend to build is feasible, and if the capital they are looking to raise is both a necessary and realistic amount for the intended goals. If exploring both of these questions inspires doubt, then it is unlikely that the ICO will lead to a good return."
Leach stressed that the white paper should also provide a detailed roadmap for the project.
"If the document fails to discuss any technical aspects in any real detail, instead being comprised of vaguely defined concepts and buzz words, you should seek to steer clear," he added.
The entrepreneur goes on to say that potential investors should ensure that the team involved with the project have a positive reputation in the industry and consider whether they have any experience operating in the crypto space.
"Even though a lack of experience doesn't necessarily indicate any sign of wrongdoing, it is definitely a cause to proceed with further caution," said Leach, adding that the presence of an appropriate escrow agent is one signal of increased trustworthiness.
Looking ahead, Leach warned that "immoral characters" will continue to be drawn by the money-making potential that the crypto market offers.
He added that some of the negative press ICOs have recently attracted is "rightfully justified, with fraudulent examples having become increasingly prevalent".
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"Unfortunately, this also means that the issue of ICO fraud is unlikely to subside anytime in the near future," he said.
"This should not dissuade you from investing in an ICO however – it still remains one of the most comparatively democratic forms of capital raising out there.
"It does mean that you should take care and be sure to do your research on any scheme you wish to get involved with. As long as you choose wisely and act reasonably, your investment should remain safe."