In the recent years ICO’s have been dramatically increasing in popularity as a fundraising strategy, since they allow both large and small investors to contribute into and support the projects they are interested in. However, even though a considerable amount of successful projects was launched with the help of ICO, it is still a quite risky way of investing: conservative investors suggest that 99 % of all the ICO projects turn out to be junk. Successful case studies prove the contrary. In any case, each investor must learn 5 lessons before investing in an ICO in order distinguish a really trustworthy project.
- The project selection should be determined by the deep understanding of its concept. Firstly, from the enormous variety of all the projects you should pick out the one you will be eager to invest in. Apart from arousing your interest, the project should make sense to you in terms of its concept; and also it should bring evident public benefit in the future or even now. This is why it is highly recommended to invest only in the projects, which you have an idea about.
- Evaluating the white paper. After the project is selected, it is very important to examine its white paper. A white paper is somewhat a business plan of a project which states its concept, the amount of investments required, the amount of tokens which the developers will keep for themselves, the period of the fundraising campaign, the information on the developers team, etc. It is recommended to read through the white paper carefully several times in order to get yourself prepared better in case you will at last decide to invest into the project. Also fact-check the information provided in the white paper. The main factor that should alarm you while reading through the white paper is an overly optimistic future outlook, vision and goals.
- Finding out about the project team. It is necessary to find out as much as possible about the founders, developers, advisory board members, pre-ICO investors and anyone else involved in the project. One of the most important aspects to pay attention to is professional experience in the cryptocurrency sphere that each developer should possess as well as the nature of the projects they were involved in previously. In order to check that, it is a good idea to look through their LinkedIn, GitHub or Twitter profiles. An obviously good sign is when the team members possess an experience of some successful startup projects in the past. Fact-check the information listed by the developers in their profiles using such sources as SimilarWeb, Boost VC or crunchbase.com: for example, the claimed success of a company, the site traffic, professional qualities of the team members of the project.
It is also recommended to go through the advisory board list: it is a good sign to see famous people in the list. Make sure the team has provided their communication channels: Slack, Telegram, etc. If there is no contact data provided, this should rise an eyebrow.
- Conducting your own extensive investigation. After you learned about the project concept and the team and made sure they are legit, it is recommended to read through the project’s announcement thread (ANN). The most popular sources where ANN are placed are BitcoinTalk.org and Reddit. Read carefully all the messages on the project’s thread board as they might contain the answers to many of your questions. Pay special attention to the answer from official developers. It is also a good option to send them personal messages to check how responsive they are. If the developers avoid answering the questions or refuse to cooperate this should cause serious suspicion.
Examining the announcement and the forum discussion will help to evaluate the reliability of tokens used. It is better to be skeptical: the more carefully you carry out your information examination, the higher the chances to avoid losing your money and getting involved into a failure project. While evaluating a token, make sure it will be able to accomplish what was claimed. Search the project’s name along with red flag words such as “scam”, “hack”, “con” on BitcoinTalk. If you find posts about the project which contain these red flag words, it is necessary to find out the reason why they erected along with the name of this ICO.
- Don’t risk with everything you’ve got. Although ICO is becoming an increasingly popular fundraising method, never forget about the possible risks of investing into new projects. Estimate a project and your own resources. Like in traditional investing, it is recommended not to contribute more than you are ready to lose.
You should also think about spreading the risks. Avoid investing only in one cryptocurrency: the cryptocurrency market development is at its peak, Ethereum Enterprise Alliance has just been created, cryptocoins are now accepted by such market cap companies as Microsoft and Intel. A good strategy would be choosing trustworthy cryptocurrencies, picking out five most legit and then narrowing down your list to top three.
ICO, being at first glance an extremely easy and fast way of investment and gaining profit, actually contains a lot of pitfalls and requires some time to check the reliability and legitimacy of the project, the team and tokens. In case you make up your mind about investing into an ICO, the key advice is to find out as much information as possible and weight all pros and cons before actually contributing your resources. The tips discussed can help you to save your money and find a potentially successful and trustworthy project.