Initial Coin Offering, a tokenizing method for generating funds, has helped a lot of startups. With the increasing buzz of cryptocurrency and blockchain, the ICO scam is increasing proportionally as well.
Dozens of cryptocurrencies and blockchain based platforms are launched every month, giving birth to a large number of ICOs. Among many other steps, ICO is also an initial step to get involved with the digital currency. As the price during ICO is lowest, early adopters can get a fair amount of profit in the long run.
How to find a good ICO for investment?
2017 was known as the year of the ICO, however, almost 46% of ICOs failed at the beginning of 2018. Since it is unregulated, one has to research a lot before blindly investing in any ICO that gets the highlight. Choosing an ICO can be a very difficult task. This article features the measures that you need to consider before investing in any ICO. Some of the critical factors to be analyzed before your ICO investment are:
1. Scalability and Uniqueness:
It is very important to pay the attention to the scale of the problem the platform is going to solve. The problem should really touch as many people as possible. Similarly, the echoes generated across by the platform should have a clear use case. If the token fails to solve a problem with a long-term vision, the token might lose its existence in the long run. It should specify how it differs from Bitcoin and Ethereum or any other pre-existing platform.
2. Hype in the crypto communities:
If an ICO is creating a lot of hype and discussions around the crypto communities, then the probability rate of success of such projects are higher.
Checking on the social media groups and websites and finding out if people are actively waiting for the ICO before its live is a suitable way to find the hype of the ICO. The lack of hype is one of the most popular reasons for ICO failure.
3. Available Supply and the distribution:
The knowledge of the availability of coins after the ICO period ends is another index to watch out before investing. The theory of economics runs with the concept of Demand and Supply; Lesser the supply, greater is the demand and significantly higher the price. For instance, an ICO named EOS (now the world’s fifth largest Cryptocurrency) had only 1 or 2 billion of total supply. This was the small amount, therefore, the price soared after the launch.
Also, you need to pay attention to the token distribution as well. The distribution of more than 50% tokens to the team member can be suspicious. Find out more about the token distribution stage and shares. A good project can link its token distribution to the roadmap as each phase or the milestone of the project requires the funding.
4. Development Team:
Find out the development team and the website you wish to invest in. The development team is responsible for building an entire project. It is very important to feature the leadership information on the website after all nobody wants to invest in an anonymous team.
Currently, there is an increase in the number of scammers that invent fake founders and biographies for their project. To avoid this, the background check of people running the ICO will help in finding the clear picture of ICO’s validity. Check out the names of the developers in LinkedIn or other media outlets along with their activities, and don't forget to see their engagement with their followers as well. Research more about the experience of the founders and determine if they are experienced enough to handle the project like such.
5. Quality of the code:
The crypto projects have an open source code which is the reason why you get to see the commit logs. A commit is a developer’s way of naming and pushing the code after every functionality added or debugged to the Github repository.
If you are a developer, you can use your skill here. However, even being a non-technical person, you can still analyze the code by evaluating the quality of the code through its consistency, and the way of commenting. Next way is to examine the length of the function. A modular approach makes the code more readable and maintainable. You should never invest in those projects that have no working codes. In such cases, contact the developers, tell them you are interested in investing and ask about reviewing the code.
6. Examination of white paper:
Another most important aspect is to examine white paper. For reference, learn about the Satoshi Nakamoto's white paper to find out what an ideal white paper should look like.
The white paper basically consists of these basic sections.
The overview section describes the problem that the project intends to solve. It generally consists of all statistics, studies, a graph for supporting the reason explaining the importance of this platform in the market.
Another important aspect is the technical specs section that features how the platform should function. This section also includes the flowchart for explaining the use of the platform.
The implementation schedule of the company is explained by RoadMap. It is usually a single page document that has a lot of information regarding the planned rate of development for potential investors.
All the information regarding the tokens is to be explained in the token information section. This section also needs to mention if the token functions on a unique blockchain or it is simply piggyback of another blockchain.
The team section explains the portfolio of the person that is responsible for developing the project. Almost every section of an ICO includes a picture along with small details of the team members with their previous experience.
Choosing an ICO is one of the biggest risks as no one can guarantee what comes next in the crypto market. It is very important to be aware of scams. If anyone could, they would still not tell you. Follow these steps at least to minimize future loss. Good luck. Happy investing.