How do you know whether a cryptocurrency is legitimate?

A cryptocurrency is very different from an ICO. They are completely different animals. For the purpose of this answer, I will assume that by ‘legitimate’ you are asking how you can distinguish between a genuine cryptocurrency and an ICO or other token.

(1) Cryptocurrency

This includes Bitcoin and many of the 1500 altcoins .

A cryptocurrency is built on a permissionless, open-source blockchain with absolutely no proprietary code or licensing requirements. Its early mining and genesis block is completely transparent, and everyone is free to mine, own, trade units. If they wish, they can have a fair and equal say in the process and code changes that are introduced.

A cryptocurrency is always built on a credible, disbursed blockchain that is traceable to Satoshi’s 2009 whitepaper.

(2) ICO

An ICO is rarely legitimate by any definition of ‘legitimacy’.

I analyze ICOs for banks, brokers, corporations, private wealth managers, individual investors, and especially for venture capital firms. Occasionally, the ICO issuer asks for my opinion, because they hope for an endorsement. As you might imagine, there are not many that make the grade (just 2 of more than 1500 prospective contracts that I turned down and 90 that I have put to the test.

Most of the ICOs that I encounter have an agenda, and it’s not hard to spot. For example, they are either:

A veiled security offering, designed to duck under securities regulations
Created for the express purpose of pump & dump (without clearly disclosing caps, reserves or pre-mined stakeholders)
A non-functioning coin that can only gain value through MLM. (This is not necessarily criminal, but outside our research and advisory mandate. Such coins are unlikely to provide value without quick, speculative trades and market timing that amounts to “dumb luck”).

So, what are the signs that an ICO is a scam? Is there anything you can do—short of hiring an expert—to evaluate each new proposal that comes along? I don’t advise or recommend holding such risky tokens—but for those attracted to the siren call of ICOs, here are six common tale tell signs that you are dealing with a scam. Any token, coin, or investment scheme that includes or suggests even one of the following traits it is a scam, as sure as the nose on your face. It is not a cryptocurrency or an altcoin—it is a scam.

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