How to choose an ICO to invest in?
How to Evaluate ICO’S?
Several ICO’s are present in the market and each one is unique from one another. They promise enormous profits and feasible returns for their investors. Before you decide to invest your money in each ICO project, keep in mind that many projects can fail or turn out to be scam projects.
Before you start: What is an ICO?
The Ethereum platform along with other cryptocurrencies is generally considered to be experimental in nature. Several popular ICOs depend on Ethereum and they follow an experimental mechanism. It is like an experiment within an experiment.
Any project that launches an ICO will have a website and a White Paper that highlights the details of the project. It will introduce the team and their relevant experience, the idea of the project, and how they will execute through the roadmap. They will also describe the approximate objectives of the project and how they plan to achieve it.
The only thing missing from the project is a final product that is finished completely. You can have a Minimum Value Product or MVP so it can allow you to be aware of the initial viability of the project and help you assess if the project has a future.
An ICO campaign can mainly be like: “This is the idea, and this is more or less the way we will try to do it, please send us money.” You can evaluate each aspect of a campaign and decide for yourself if you wish to invest your funds and take the risk by participating.
Nonetheless, you need to remember that taking the risk is worth it at certain times. For instance, EOS ran an ICO campaign without a product or even a platform and still managed to raise over $ 4 billion during its entire campaign. Their token started trading at $ 0.925 and was at around $ 5 for a couple of days after the launch of an ICO. The highest price the token has had was $ 21.30, which was 21 times the price paid in the ICO.
Should you Invest in an ICO? Simple Financial Advice
Several guides that educate about cryptocurrencies will convey a simple message and that is to not invest more money than you can afford to lose.
However, we do not suggest that you follow this seriously either. The creative mind behind Ethereum, Vitalik Buterin who is also the most prominent figure of the crypto world has highlighted this as the following:
How to detect an ICO that is a scam?
1. Find out everything you can about the development team
To start off, ensure that the developers are not anonymous. It can be quite alarming if they are and if they disclose their names and identity, you need to do research online and focus on the development team behind the project. You will find many scam ICOs who will claim the participation of a prominent figure to gain attention so ensure that you always verify the social profiles of such people.
You can also check the background of each team member to know what they have studied, which university they go to, and the kinds of things they’ve worked on before. Focus on the experience of criptomonedas that are relevant to previously released ICOs in which they have participated and left an impact on their project. You need to look if their previous experience will be enough for this project in which you will invest, to be successful.
You can proceed to ensure that your ICO has a broad and open community to support the project. A telegram chat or a public Slack can be a good sign for investors. Sources like Facebook, Reddit, and Twitter can also prove to be quite beneficial when you evaluate an ICO.
Look out for rewards programs as it is a very common practice to ask people to spread positive information about the project in order to obtain certain rewards. This can be done in order to increase the attention from media houses and communities to the projects. Such reward posts do not necessarily mean that an ICO is a scam, but a promising project with experienced team members and a decent promotional campaign will not need to rely on such impulses
The team’s presence on social media and constant communication with investors is also a very good sign. Constantly communicating with investors and keeping them up to date also gives out a good sign for the social media presence.
3. Check the Project Stage and Venture Capital Investments
There is no rule of thumb that states a project should be in a certain development stage before it hosts an ICO. At times, you can only find a rough outline and a white paper and at times you will find a beta version of the product that comes with limited functionality.
Of course, it is always safer to invest in projects that are as close to the launch of a fully functional product as possible. As a general rule of thumb, investors look to prioritize projects that have a few lines of working code.
Yet, this is not a universal rule as we have come across several ICOs that have gained success through any code.
You could also look for Venture Capital investments. Venture capitalists that are well-built in the market usually comprise experienced players so they will avoid investing in a project where they believe they can fail.
ICOs will similarly advertise Venture Capital’s involvement in the project magnanimously and will do so especially if it is a venture capital company that is related to cryptocurrencies. Yet, you will need to cross-check and verify.
4. Read the ANN Thread on BitcoinTalk
BitcoinTalk.org will be useful when you decide to invest in an ICO as it is the largest forum dedicated to Bitcoin and everything related to cryptocurrency. Several announcements are made here and they are marked with an ANN. If you do not see your ICO listed over there, it’s time you rethink your choices.
If you lack the knowledge that is required to comprehend the technicalities of the project, ensure that you read the thread that is solely for the ICO. You can find members of the community who are experienced giving their opinions and assessing the elements of the project.. These threads can prove to be quite useful to test how legitimate an ICO is.
In online forums or in the cryptocurrency community, importance is given to the user’s reputation. Each post in an online thread will contain the current ranking of the person and the number of previous posts. Generally, the higher the rank, the more reliable his information is.
Advertisement threads are also an amazing way to check how reliable and responsive the developers of the ICO are. It is better to take it as a warning sign if you see the developers not answering certain questions or are not actively participating in the thread. Additionally, you can always try sending a message to the developers to check how responsive they are.
5. Read the White Paper
The entire guide is a synopsis to know what exactly you will be investing in. Similarly, you can learn everything about the project by reading its white paper.
An ICO primarily looks to raise funds from small investors in the market. By clearly defining the project goals and how they can achieve them, developers can attain some clarity.
It can help you: What is a white paper and how to write it?
An outstanding white paper will outline the rules of a legal framework and the connection that exists between the developers and investors of the project. This should additionally layout terms and conditions for the ICO. It’s good to add information stating how your tokens will be distributed to your investors. Some funds will be required for each phase of the project so it will give a positive sign if the token is tied to the roadmap of the project.
Another crucial question that the White Paper has to provide the answer to is Why does the project need its own dedicated token? Why can’t already established cryptocurrencies like Bitcoin or Ethereum be used? A white paper will have to answer questions stating why does a project needs its own dedicated token and why cannot cryptocurrencies like Ethereum and bitcoin be used?
This question can arise in Blockchain technology as well. Why does one need to apply for Blockchain technology and how can it improve the services you provide?
We know that a legitimate project will provide its potential investors with a roadmap. So if it contains a detailed breakdown of how the funds raised will be used, the pricing model, and the value assigned to the business, it can give a good sign to the investors.
Furthermore, you should ensure that the money received is stored in an escrow wallet. The best use case about this here would be that the escrow service is not provided by an individual or a firm, but it is carried out electronically through the use of Ethereum smart contracts.
6. Assess Code Quality
It can be a huge threat if you see that the project does not have any working code before your ICO is launched.
If you have even a little background in programming and are aware of how to read the code, you should do so when evaluating an ICO. You can understand a lot about a project and its developers simply by analyzing the code they have created.
Learning From Venture Capital Investors
The only way Venture capital investors can make an investment is by being selective contributors. Venture capital investors carefully invest in everything and only focus on the return on investments.
To add to this, there is some added information. A general belief in the venture capital world is that it is never suitable for a start-up to receive too much money too quickly, as they will be forced to spend the funds as they are widely available.
So you better understand the process: How to buy ICO Tokens: A Beginner’s Guide
A venture capitalist usually requires a strict return on projects that they have invested in. If a project does not meet these requirements, they will not consider investing in it.
You can learn several important things from venture capitalists. You can know what you are investing in, manage your risks and assess a company before you invest your money.
Are ICOs a Bubble?
Earlier, the dot-com bubble was widely compared to the gold rush. The craze of ICOs can now be compared to what’s happening across the world and how the investments made through them are done in fear of losing gains.
You need to understand that as a potential investor, you are still subject to risks. NEO or IOTA types of sources which will reach maximum prices one hundred or two hundred times higher than the price of the ICO can be very successful.
Learn more about the projects with the best returns: The 10 best ICOs with the highest return on investment
The pointers mentioned above do not completely determine if an ICO is a failure or if your investment will bring you ample proceeds and it will help you to choose the projects that have the greatest probability of success from those that will not perform well.
ICO Legality Issues
Before you invest in an ICO, ensure you are not going against the laws. ICOs are completely banned in some jurisdictions, such as countries of China and South Korea. And while they are currently permitted and unregulated in many other places, the majority of local regulators are presently developing legislation to outline certain rules around ICOs and impose certain limitations.
The cases of Paragon and AirFox with the regulations of the Securities and Exchange Commission of the United States disclosed a before and after for the ICOs that arose in the United States. The American authorities have determined that the projects that have been sanctioned had to comply with the same requirements that were determined for the sale of regulated securities in the US market. They have had to pay a hefty sum of money to US investors for non-compliance with rules.
The decision was highly problematic as it put the entire market on notice and showed that ICOs that had already launched in the past could still be formulated in the absence of regulations.
Token holders of both Airfox and Paragon were affected despite the sanction being limited to a US jurisdiction. The imposition of large fines and the fear of future sanctions had caused the prices of the tokens to rise rapidly and they generated negative reviews for all investors.
To sum it up, you must pay attention to legal regulations that may be brewing within the jurisdiction of the ICO you want to invest in. They could be laws on cryptocurrencies or regulations for the collection of funds via an Initial coin offering.
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