ICOs are a huge industry: in the first six months of 2018, over 6 billion euros were collected worldwide. There is a great temptation to get a chunk of the ICO money with dubious or even illegal methods. We show the tricks.
Coinflipper – or why we can’t win at ICOs
“ICOs have the practice of ‘flipping coins,” says Bruno Skvorc of the forensic blockchain analysis company Bitfalls at the Blockchain Innovation Conference. “Whales, i.e. large investors, buy into a project very early with a large bonus. As soon as the token is traded on a stock exchange, they sell at the issue price and make a profit.”
But not everyone can flip coins. Because in order to enjoy a high bonus at an early stage, high investment sums are often required. ICOs stagger with seed sales, private sales and pre-sales, so that small investors never get their chance in time. So anyone who buys ICO tokens at the issue price has already lost.
Bruno Skvorc goes one step further: “The ICOs are used for money laundering. Investors who have come to Ether with illegal transactions conveniently exchange them for tokens from an ICO. From there via Bitcoin and Monero to Fiat”.
Fiddling with ICO rating pages
“Websites that report on ICOs are now almost all asking for a ‘bribe,” adds Bruno Skorvc. “This will remain until Facebook, Google and Twitter lift their ICO advertising bans. We did some research: For the publication of a press release, ICO websites charge between 350 euros and 2 Bitcoin (11,000 Euros).
ICO Bench is particularly expensive. The rating platform takes up ICO projects without payment. But anyone who wants to stand out among the thousands of ICOs pays. According to our research, the best advertising package on ICO Bench became increasingly expensive within a month (February to March 2018) from 1 Bitcoin to 1.7 to 2.1 Bitcoin, without any measurable performance being guaranteed.
With three million visits per month, ICO Bench is the most important rating site. In recent weeks, the Russian site has come under increasing media pressure. The accusation: deception of the public. ICO Bench does not have its own rating experts under contract. Rather, anyone who signs up on the site can call themselves an expert. There are 340 self-appointed experts on the site. (see the ranking list: https://icobench.com/experts)
Number 1 was for a long time a former fundraising coordinator of the Red Cross. Within one month (15.5.-14.6.2018) he has rated 44 ICO projects, believe it or not. His average rating is 4.4 out of 5, which is a whopping 88%. This exceeds the already high average of all ratings of 78%. The statistical average should actually be 50%.
We see that the ratings are exaggerated with a statistically high probability. In addition, it is precisely the number 1 of advisors in the last few months who has played the paid role of advisor in 47 ICO projects. Our research showed that the Top ICO Advisors (who are also the Top Raters on ICO Bench) receive between one Bitcoin and 40,000 US dollars as a down payment as well as a share of the takings in Ether and/or project tokens. But for which service? And what service can someone provide who represents up to 15 projects at the same time?
Whoever requests these consultants usually receives a bullet point menu of potential services. For almost every top advisor, the main service is “the excellent name of the advisor” as well as tens of thousands of Linkedin contacts.
ICO Bench avoids the danger of conflicts of interest and prohibits ratings by advisors active in the project. But is that enough? The magazine Tokenicide comes to a different conclusion:
“Several founders of blockchain start-ups told us that they felt they had to hire one or even more of the top consultants to get good ratings from ICO Bench.”
Tokenicide shows with the example of the current ICO of eInc that seven of the Top Rater have engaged on ICO Bench as consultants. The author chatted with three of them and was able to quickly find out what the consulting costs (US$ 40.000), but not what the ICO project gets for it.
Tokenicide shows how ICO projects receive excessively high ratings from top experts when other top advisors are already under contract and claims that the consultants give each other good ratings.
In a Fintelegram research, we were able to prove how an employee/consultant of two Austrian ICOs – Cointed and Hydrominer – has abused the ICOBench system to create better scores.
Where ICO journalism is for sale
Admittedly, it is very difficult to find out which ICO is worth the investment. There are journalists for that, too. But since traditional media usually only report on falling or rising Bitcoin prices, there is still a vacuum in research and reporting. Youtubers have nested themselves in this niche. They tell their audience about the latest ICOs. Some do this so badly that they simply read the ICO website. Others try harder. “The author gets to read “Send me the whitepaper, I’ll do the rest” on request.
We have written to over 50 Youtuber and received 15 offers to do video reviews of the ICO. For reading the ICO website you pay between 2 and 5 Ether, for Youtuber with 50.000 followers up to six Bitcoin are due.
The 105.000 Dollar Tweet
John McAfee should not be missing from the list of dirty ICO tricks. The inventor of the anti-virus software McAfee jumped on the ICO bandwagon early and used the market power of his 800,000 Twitter followers to (allegedly) manipulate prices of coins and hype ICOs. First, he published a cryptocurrency every day, which he “liked”. In the seconds and minutes after the post, the exchange rate of the respective currency jumped to double and more, only to fall sharply again shortly afterward. Those who had bought the hyped coins slowly and steadily in the days before made a profit.
After this pump & dump stunt stopped working, McAfee decided to become a “strategic advisor” to promising ICOs. However, unlike the ICO Bench Advisors, McAfee admitted that his only activity was to sell tweets through the ICOs. In April 2018, McAfee admitted to asking $105,000 for a tweet.
Now it is clear to ICO investors that a McAfee tweet says nothing about whether a project is promising or not. But, so the thought goes, “if McAfee tweets about it, many fools will invest. If many invest, it’s a good investment. So I invest too.”
Prudence is the better part of valor
Every consultant, Youtuber, and blogger writes at the end: DYOR – Do your own research. So let’s learn to recognize the tricks of the ICO industry:
- Too big prize bonuses for selected groups
- Unnaturally high ratings at ICO Bench
- Many consultants where it is not clear what they are doing
- Youtube ICO reviews that are only positive and superficial
- McAfee Tweets
All these characteristics do not show that a project necessarily has fraudulent intentions. But the question is whether really good projects need dubious methods.