Aspects to Consider Before Investing in ICO
ICO’S (Initial Coin Offerings) have acquired a huge craze among the growing cryptocurrency community. It is a cost-effective capital raising method where blockchain technology will be used to power a product or a service. A specific amount of funds will be raised and fiat currency or cryptocurrency will be used to pay for the new tokens by the purchasers who are investing in ICO.
Some Areas to Evaluate to Avoid Becoming a Victim of a Scam or a Failed Project Before Undertaking Investment in the Initial Coin Offerings Are
Analyze the background of the team members – Research every member of the team thoroughly. Look at their experience in the industry and go through their LinkedIn, GitHub, and Twitter profiles to get a better understanding of their background and accomplishments. Be cautious in investing in ICO’s launched by newcomers. In case they have reputed ICO advisors as part of their management team, it will lift the credibility of the project.
Understand the functionality of the token used in the project – Before deciding to invest in an ICO, check the utility and real-life use cases of the token. The token should also comply with the well-known ERC-20 standard. Know in advance the number of tokens created and the number that will be actually sold along with the number of tokens reserved for the founders and team members of the project. If they offer tokens in the form of securities, they must have certain licenses and registration according to the FINRA (Financial Industry Regulatory Authority) rules in the USA. Study the rights and benefits offered by the tokens. Certain tokens may not give you a stake in the ownership nor provide you with any voting rights. Watch out for liquidity issues in the market that will affect the buying or selling of your ICO tokens. Calculate the soft cap and hard cap as it will indicate the clarity of the project’s vision. Not having a hard cap indicates a red signal not to invest.
Look at the roadmap of the project – The roadmap should disclose the progress made by the company and must be highly transparent. A poorly crafted roadmap will lack a proper vision and indicate an outright scam. Be wary of projects that offer wonderful returns in a matter of a few months. The distribution of the funds being raised should also be revealed in the roadmap. The overall project plan must be realistic enough with details about the development and launch of the token along with the exchanges that they are going to partner with.
Check out the quality of the code – Only those who have solid technical understanding will be able to check the quality of the code. The code should be open source (publicly accessible) and a trusted and independent third party must validate and audit it thoroughly. A whitepaper that avoids disclosing the technical aspects of the project should be seen as a bad sign and investment must be avoided at all costs.
Observe the behavior of the community supporting the project – If a dynamic and growing community is supporting the firm’s ICO project, it indicates a good sign of interest in the project. This indicates that a solid marketing campaign is going on behind the scenes to build an efficient robust network of enthusiasts. It must experience real traction by generating a constant buzz.
Verify their reputation in the industry – Look out for feedback on popular discussion forums such as Bitcointalk, Reddit, Cryptocurrencytalk, and Quora. It will help you to get a general idea of the opinions about the ICO project in an unbiased way. Check if their tokens have been listed on the leading exchanges in the market. This indicates the demand behind the buying and selling of the token.
Analyze if all legal norms have been satisfied – An ICO project earns trust if it has fulfilled all the legal requirements with due diligence. Read all their applicable terms and conditions before proceeding to invest. It will depend on the seriousness of the project and the nature of its token.
The protection offered in case of any threats – ICO’s can be anytime subject to protocol breakdowns, hacking attacks, malware, and fraud. It is best to have cybercrime insurance in place to protect the platform’s products from these threats.
Verify if they are following KYC guidelines – Adherence to KYC (Know Your Customer) guidelines ensures transparency and fairness. It renders a sense of stability and more value for your investment. The users’ data must also fulfill the GDPR (General Data Protection Regulations) issued by the European Union. An official KYC manager must be present to deal with any registration issued faced by the investors.
Read their published whitepaper thoroughly – The whitepaper must document the project of the firm well. It should indicate the benefits offered by the investment, the future applications of the token, and the exchanges where the token will be traded commercially. You can determine the project’s economic and technical feasibility by reading the whitepaper.
Of course, there is no perfect time to invest in an ICO. A lot of questions will arise during your investments regarding the plan for your fund usage and the development of the technology. Most of the ICO’s present currently in the market are too common. The ICO market will rise and sink just like a stock exchange. It is best to seek help from a professional ICO investment agency if you are completely new to the market. Before proceeding to spend your money, evaluate the value of your token against any popular asset or Bitcoin to know its true value when traded on an exchange. Only when you choose the right ICO according to your requirements, you will get positive returns from your investment. Be highly cautious while choosing your investment in ICO as the huge media buzz has been used as an opportunity by fraudsters to dupe gullible investors. Beware of the fact that it will be very tough to recover your investment from an ICO project in case your tokens are stolen or hacked.