As tempting as it is to invest in initial coin offerings (ICOs) right now, the last thing you want is to lose your money to a crypto-scammer.
The past year has brought an explosion of new cryptocurrencies, most of which arrive in the form of an ICO.
Some ICOs have raised stunning amounts of money in the blink of an eye. In August, Filecoin set the current record by raising $252 million in 30 minutes. This year, more than 200 ICOs have attracted more than $3.2 billion of investor money.
But unlike the IPO concept on which they are modeled, ICOs are virtually unregulated.
And that's fertile ground for scam artists...
Because the world of cryptocurrencies is virtually unregulated, ICOs lack any investor safeguards whatsoever.
For one thing, no regulatory oversight means the people behind an ICO don't need to follow strict disclosure requirements.
And because ICOs sell their tokens directly to the public, they don't need Wall Street investment banks or stock exchanges. Taking Wall Street out of the equation may sound appealing, but it removes another crucial layer of protection for retail investors.
A scam company would be exposed long before it reached its IPO date.
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That lack of scrutiny makes it easy to launch an ICO designed solely to extract money from investors eager to get in on the ground floor of a fresh cryptocurrency.
It also means that if you fall into a scammer's trap, you have little recourse to recover lost funds. Money lost to crypto-scammers is usually gone for good.
But you don't have to pass up the extraordinary gains possible in cryptocurrencies out of fear. You just need to know how to tell legitimate ICOs from the risky ones.
Here are the red flags you should look for...
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Often these scams take the form of a spoof website designed to look like that of a legitimate ICO. People fooled into using these fake websites to participate in an ICO end up sending their money directly to the scammer. If you're going to send money on a website, check - and double-check - the website address.
Other scams send e-mails claiming to be from an ICO operator. These often will advise the victim to send funds to a particular address to participate in an upcoming ICO. But the address they provide is to a wallet they control, not the official ICO address.
Investing in ICOs can be lucrative, but as you can see, it's fraught with danger. And for now, you have to be your own policeman.
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About the Author
David Zeiler, Associate Editor for Money Morning at Money Map Press, has been a journalist for more than 35 years, including 18 spent at The Baltimore Sun. He has worked as a writer, editor, and page designer at different times in his career. He's interviewed a number of well-known personalities - ranging from punk rock icon Joey Ramone to Apple Inc. co-founder Steve Wozniak.
Over the course of his journalistic career, Dave has covered many diverse subjects. Since arriving at Money Morning in 2011, he has focused primarily on technology. He's an expert on both Apple and cryptocurrencies. He started writing about Apple for The Sun in the mid-1990s, and had an Apple blog on The Sun's web site from 2007-2009. Dave's been writing about Bitcoin since 2011 - long before most people had even heard of it. He even mined it for a short time.
Dave has a BA in English and Mass Communications from Loyola University Maryland.