How To Decide If An ICO Is Worth Your Time And Money

A Brief Explanation of ICO

ICO stands for Initial Coin Offering – a fundraising method that trades future crypto coins for cryptocurrencies which have an immediate, liquid value. [Investopedia, 2018]

Usually, some tokens are sold to ICO participants and some are kept for the company’s needs (private investors, etc. Terms differ from one ICO to another). Whether you invest big or small, you can handpick the projects you like and purchase their crypto coins.

All investors share one common wish: that the price of the token will be higher (or much higher) than the token’s price during its launch. ICOs are selling like hot pancakes. The recent year has seen thousands of successful ICO stories. Hdac and Filecoin collected respectively whopping amounts of $258 and $275 million [CryptoPotato, 2018].

But, and a BIG but, not all ICOs are genuine. Mycelium ICO’s team members vanished after raising the money. It was reported they used the funds to pay for their own vacation! In another case, $7 millions were stolen as CoinDash’s ICO started. Right before the start of the token sale, their website was hacked and the ICO wallet address was changed to the hacker’s address.

That is why you have to read the following steps to decide if an ICO is worth your time and money.

Step #1: Switch On Research Mode

Find out everything you can about the team, offline and online, especially the development team and the advisory board. Look up each team member for relevant experience. Google their names. Visit their LinkedIn profiles. Visit their offices. Look for famous names among the advisory board of the project. Find out if the team has any crypto experience and more importantly – in which projects, or ICOs, they were involved with and the impact they had. 

Step #2: Check The Project’s Stage

If they have a whitepaper on their website, study it so you’ll know the roadmap.  Check if there is a launched product but with limited functionality. Projects which have “some lines” of working code are your best bet.

VCs (venture capital) tend to invest and support projects from early stages. Look for this information usually on the main page of the project’s website. It’s likely to be considerable if a well-known crypto VC is involved, like Blockchain Capital or Fenbushi (belongs to Vitalik Buterin – founder of Ethereum).

Step #3: Make Friends With Social Media

It’s important to have a wide open supporting community like a public forum for all investors. Try to grasp the atmosphere within the community. Look at the size of the community and its activity.

A good starting point is the project’s announcement (ANN) thread on BitcoinTalk.org, the biggest forum for Bitcoin and crypto related issues. It is strongly recommended that you read the messages carefully. Investor’s concerns will be answered (or may be unanswered) in this thread. It is a bad sign when the developers avoid answering certain questions or aren’t collaborating. Sending devs a personal message to see how responsive they are is also a good idea.

You may find other sources like Reddit, Twitter or Facebook to be useful too. Be aware of bounty posts. It is a common practice to launch a bounty thread to reward users for spreading positive information about the project to increase media coverage, or to help out with translations. These bounty threads can stimulate the hype around the project, but they are not very objective.

Step #4: Understand What’s The Token For

ICOs mean the creation of a completely new dedicated token for the project. One of the most important questions each project needs to answer is: What is the token for? Why isn’t Bitcoin or Ethereum enough to serve as the project’s token? Why use blockchain technology behind the project? Find out.

Verdict

If you’ve been reprimanding yourself for not buying those blockbuster coins like Bitcoin and Ethereum earlier, you might want to consider ICOs. Be warned, however: ICOs are a high-risk way of fundraising and scams are aplenty. Never invest anything you can’t completely afford to lose. Right now cryptocurrency as a whole is kind of like the wild west; there’s gold in the hills and a lack of regulation, so you’d have difficulty getting back your lost money in case of any failures.

 

References

Investopedia, 2018. What Is An ICO? [online]. Available from: https://www.investopedia.com/news/what-ico/ [Accessed 10 October 2018]

CryptoPotato, 2018. 10 keys for evaluating Initial Coin Offering (ICO) investments [online]. Available from: https://cryptopotato.com/10-keys-evaluating-initial-coin-offering-ico-investments/ [Accessed 11 October 2018].

 

Written by Deng Xiang

 

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