This article will explain what the current state of the ICO galaxy is, and dwell on the characteristics one should have in mind when looking for an ICO in which to invest.
The ICO Hype
It’s an undeniable fact that the current ICO market is crazy. Every day, new ICO projects emerge on the crypto scene, and they collect gigantic amounts of capital.
The new method for gathering funds has turned into a hype in the late 2017 and early 2018. While in 2016, there were just around 30 ICOs, this number soared to 1,200+ in 2018, marking an increase of more than 40 times! The money raised by the end of 2017 surpassed the whopping $6 billion.
However, the beginning of 2018 marked a huge decline.
According to a report by Ernst & Young, In June 2017, 90% of ICOs met their funding goals. In November 2017, that number plummeted to just 25%.
And while these crowdfunding methods still remain an innovative tool to collect capital for the development of a project, before you even decide to jump on the ICO train, you should be aware of the ever increasing number of scammers.
Beware of the Innovative Scammers
The astoundingly huge amounts of money, unfortunately, attract thousands of thieves. Next to the real businessmen whose aims revolve around creating something revolutionary with which to disrupt the market, this still relatively new method for crowdfunding appeals to a soaring number of scammers
The ICO, Blockchain, and cryptocurrency industry is still fairly new. Thus, the grand majority of people has no idea what these instruments are, how they function, and what their purpose is. All these have made it extremely easy for scammers to take advantage of and even abuse the hopeful but incognizant users. Most of the latter invest huge chunks of their hard-earned capital with little or no research whatsoever, often falling prey to the money-hungry scammers.
E & Y conducted a study on 370+ ICOs in 2017, which revealed that more than 10% of the $3.7 billion raised via those campaigns had been lost or stolen.
The study noted that the most broadly used technique used by hackers was phishing.
What Is Phishing?
“Phishing” basically means that scammers build fake ICO campaigns and websites with which to trick reckless investors to put money into the hackers’ wallets. And as we just saw from the study, hundreds of thousands have already fallen for that trick.
By far the hugest channel for hackers, scammers, and online thieves is Telegram. Make sure you don’t send your funds to a fake address that has been sent to you via a personal message on Telegram. Always double and triple-check the website of the ICO and the people behind it.
What to Search for Before Investing in an ICO?
To ensure that you won’t lose your hard-gained capital to the benefit of a greedy person or a scammer, we’ve put together a checklist with things to look for before you even decide to join an ICO.
- 1) An Accessible, Credible, and Well-Informed Development Team
First of all, search for information about the project’s developers. If there’s not enough or even no information about the team, that should ring the red bell in your head that something is stinky.
Secondly, look at the team’s experience, what their previous occupations were, and what successful projects have they been part of in the past. If they do, then, the project they’ve set before themselves is more likely to be achieved.
And third of all, check out their social media links (usually a LinkedIn profile) and contact them directly, asking whatever questions you might come up with.
- 2) Well-Established Crypto Advisors
It’s not uncommon for ICOs to not have an Advisory Board. While it’s not a written rule that they must have Advisors in place, an ICO with prominent crypto specialists on board builds more trust in the investor.
In relation to #1, do your due diligence, explore their social media channels, and reach out to them if needed.
- 3) A Detailed, Realistic, and Well-Written White Paper
This is the single most important document of the ICO. The White Paper explains everything in detail and it could be referred to as “the company’s pitch to investors.” It is usually accompanied by selected company data, infographics, mission and vision, and a road map (check #5 below).
When reading the white paper, make sure you understand everything and watch out for empty promises, over exaggerated stats, as well as buzz or hype words. The majority of projects that are about to start in the crypto world are great ideas in theory, but in practice, there’s no real need or benefit for them to be done over the Blockchain.
And last but not least – take a look at the grammar and language of the white paper. If it teems with mistakes, that’s a definite no-no.
- 4) An Active Announce Thread on Bitcointalk.org
Another element to look for before investing in ICOs is their announce thread on BitcoinTalk’s website because Bitcointalk.org is the largest forum for crypto-related questions.
In this thread, the team typically answers investor questions. If the ICO avoids or doesn’t answer some questions, that’s usually a red flag. Sending a personal message to the developers there is also a good idea.
- 5) A Clear, Realistic, and Well-Developed Roadmap
No ICO project can do without a roadmap. There, the team describes the next steps, what they’ll do with the capital raised during the ICO, and what should investors expect in the future.
It’s highly advisable to read their roadmap attentively and watch out for empty promises and exaggerated data. Roadmaps have timeframes – check if the things there are achievable within the specified time.
As a potential investor, you should get acquainted with when the project began and how far its development team has come.
- 6) A Clean Design and a Good-Looking Website
It’s 2018 and websites that reek of the 1990s or the early 2000s are a huge turn-off. The company’s website is its face before potential investors.
When browsing an ICO’s site, look at how it has been set up, if everything is clear, what images have been used, and whether it’s easy to navigate through it.
A poorly-designed website is usually a sign that the company lacks financial means to market itself well. If that’s the case, then chances of achieving the aims it has set before itself are slim to none.
- 7) Regularly Maintained Social Networks
Social networks are an ICO’s main channel for communication with the public and its current and potential investors. Most ICOs use Telegram as their main channel for communication, and Facebook, Twitter, and YouTube for announcing news, videos, and updates.
Have a look at each of them. During their Pre-Sale and Main Sale, ICOs should be quite active on all social media. If there hasn’t been any activity for more than several days on their main social networks, this should ring a troublesome bell in your head.
- 8) Limited Soft and Hard Cap
The early days of ICOs saw some projects with unlimited funding. And that’s an immediate red flag because the more coins in circulation, the less valuable your tokens will be, especially for trading – due to less demand.
Some projects went as far as $150 million (Bancor, for instance), which resulted in negligible percentage gain for investors.
However, steer clear of projects that raise very little as it’ll be hard for you to trade your tokens after they are released.
- 9) A Project’s Current Stage
The big majority of ICOs are merely ideas. However, there are some that have already launched a product/service with some (usually limited) functionalities. And they are conducting an ICO to develop it further.
Look for the latter as they’re much more likely to achieve their targets.
- 10) Clear Token Distribution and Fund Transparency
You have to know where your money will go to and how they will be put to use. Thus, the more transparent an ICO is with its raised capital, the less risky it’s for you, the investor. ICO projects with clearly defined token distribution should be the ones on your investment radar.
Look for companies that share:
- 1) The total number of tokens which will be released.
- 2) What percentage will be sold during the Pre-Sale and the Main Sale?
- 3) How many will the team and advisors receive?
- 4) How will the raised capital serve for realizing the project?
Those who are serious about their ICOs will share all the above-mentioned details. Often, they will even very clearly state what % of the money will be used for marketing, advertising, employees, future investments, etc.
While you might get lucky with some risky projects, jumping into an ICO just for the potential of a high ROI is nowhere near a long-term, sustainable strategy.
Resort to your common sense, perform your own due diligence, and always base the decisions you make on facts rather than on hype. If your intuition or gut feeling tells you that something is not right about a project, then just look for other ones. And as you saw in the beginning, the market is now offering plenty of choices.
Should you consider all the 10 elements well, you don’t greedy, and you don’t take any pointless risks, you’re much less prone to falling prey to hackers, scammers, or malicious ICO projects.