Recently, there has been a surge of ICOs popping up in the market and it is crucial that steps are taken before contributing to one. Evaluating an ICO can be difficult and time consuming, but with some effort and study, you should be able to get a grasp for what the project is aiming to do, the problem it currently solves, and the future growth it could achieve.
There are plenty of exciting technologies and projects being built with blockchain technology such as CanYa, Shping, and Invox Finance, to name a few. As an investor and contributor to the ICO, learning to filter the signals from the noise in the blockchain space can be really tricky, as it can be difficult to know who to trust and which projects to go all in on.
While there are no fail-proof formulas you can follow that guarantee a successful investment, there are some heuristics you can use to identify the scams from legitimate ICOs.
1. Thoroughly Scrutinise the White Paper
Studying the project's white paper is important as it tells potential investors about the project's background and architecture. It is the bible of the business. There should be an accurate and clear market analysis with estimated costs for each funding stage. Special attention should be made to the technical details of the framework and the risk and rewards involved in the startup. Overall the project objectives should be specific, achievable, and measurable with a strong message and a clear identity rather than it sounding like a sales pitch.
2. Evaluate the Project Management Team
Once you have nitpicked the white paper and the concept of the startup, your next step is to know who will be executing it. Research the reputation of the team and their work ethics, checking for experience in the field as well as successfully completed projects–a LinkedIn profile always goes a long way. An experienced team would help in the development of any project.
3. Understand the Tokenomics (Token economics)
Integral to ICOs are Tokens or Coins themselves and understanding the economics of how it would be used, is vital to ensure a successful ICO contribution. Before contributing to an ICO, you would need to understand the mechanics and specifics of token distribution based on a given sale and ownership structure. Tokens should also have a role in the operational level of the project. If the token usage is obscure, not well explained, or not defensible, there is weakness in that business model.
4. Check the Credibility of Their Advisors
The role of advisors cannot be overstated as they provide guidance and mentorship. From vetting an idea to creating a roadmap for an actual production, advisors can make or break an ICO. Always check the background of the board of advisors and the extent of their level of involvement.
5. Consider the Long-term use of Tokens
Take a look at what the ICO tokens will offer you. For example, some token holders will receive a share of the company's profits and rewards in goods or services. Other projects simply buy the tokens back from the investors at a premium. Pay close attention to the projected inflation as tokens should not lose its value. Lastly, compare the amount of tokens distributed between the founders and the shareholders.
6. Consider the Future Plans
Companies with realistic and well-developed future plans are always a better choice. As an investor, you would want to know the future plans and the long term cryptocurrency ecosystem of the company following the ICO. If a company only wants to offer a product or service until the end of time, with no further investments and ideas planned out, then chances are their success will be short-lived. This is a bad sign for potential investors, as the token value increase potential becomes limited.
7. Be Involved in the Local Community on Social Media
Be proactive and engage with the community on all platforms about the project. Do not be afraid of asking questions and contributing to the discussions. Platforms like Telegram, Twitter, Facebook and YouTube are great places to connect with the community and get quick updates about the project and ICO.
8. Check Their Smart Contracts
First of all, what is a smart contract? A smart contract is a specific type of contract created and stored on a blockchain, designed to facilitate legally binding, self-executing transactions between parties. They not only define the terms and conditions around an agreement in the same way that a traditional contract does, but also automatically enforce those obligations. By checking a smart contract you would know what you are getting into and the what is in it for you as an investor.
9. Check Their Roadmap
The roadmap will provide an outline of where the financing will come from. The roadmap should be aligned with the white paper and the objectives stated in it. The stages of the roadmap should be achievable within the stated budget and timeframe.
10. Be Careful When Sending Funds and Watch Out for Scammers
There will be scammers and phishers sending out fake addresses and even fake ICO websites leading up to the ICO. Be very careful when sending funds. Triple-check the ICO address before sending anything.
Deciding to invest in ICO is the same as any other investment. Do your homework—evaluate the project's potential for profit, as well as the length of time your investment will take to pay off. Thoroughly understand the project's framework and most of all, do not be afraid to ask for advice and get involved with the community surrounding the project.