How to Invest in ICO? How to Know Which ICO Is Worth Investing?
Crypto currencies have opened up a realm of new and endless possibilities for consumers / businesses alike. Initial Coin Offering (ICO) is understandably the most prominent fintech projects, garnering the bulk of all media attention dedicated to space. How to invest in ICO and how do we know which ICO is worth investing?
The consensus in the crypto community is that there are a lot of scammy ICOs out there. Most ICOs are scams and most cryptocurrencies are shit coins. Of course, some ICO tokens are legitimate and you should learn how to identify them.
What is Initial Coin Offerings?
A simplistic interpretation of the issuance of such coins, or tokens, is that they are an investment on a possible future payoff. An ICO is akin to an IPO, it is the very first sale of stock issued by a company to the public. Until a company’s stock is offered for sale to the public, the public is unable to invest in it.
As for ICOAn ICO is a fundraising tool that trades future cryptocoins in exchange for cryptocurrencies of immediate, liquid value. For example, if a startup technology firm has a business plan to apply blockchain for a certain solution, say, improve the back-end of securities or payment processing like Ethereum and OmiseGo had their ICOs in the past, investors would purchase the tokens before such a solution is actually realized or operational. The ventures could receive the tokens for payment in the future development of their business.
ICOs tend to be open from between a few weeks to a month, though some have been open for longer and fundraising for a particular ICO possibly taking place on multiple occasions, unlike an IPO which is a onetime event.
ICO, however, is different from IPO as it is an unregulated means of crowdfunding via the use of cryptocurrency and is applied by cryptocurrency businesses as an alternative to the rigorous and regulated capital-raising process required by venture capitalists, banks, or stock exchanges.
Are all ICOs legitimate?
There have been plenty of success stories. For example, In 2014, Ethereum, promising to bring a turing-complete language to the blockchain, raised over $15 million (in BTC) through an ICO-like fundraising period. The value of an Ether hit a high of US$14 per Ether in 2016. Now, you can check out the Ethereum price in the market – more than $200.
At the same time, there are many ICO scams and the list grows longer every day. GameBet Coin (GBT) is one of the prime examples that raised more than 200 BTC during their ICO. At the end, they didn’t manage to deliver.
How to Know Which ICO Is Worth Investing?
Many ICOs lack legitimacy. All the scammers need is a wallet, a Whitepaper and a working website and they are good to go. Hence, we strongly suggest doing a serious due diligence before taking part in an ICO. We have compiled here a checklist here to identify which ICO is worth investing.
#1 First of all, studying the project’s whitepaper is essential as it is a document that tells potential investors about the project’s architecture, the market, and the risks. The project developers should be able to clearly define the purpose of their project that laymen can understand. That also means the information shouldn’t be too vague and all details should be captured in the document.
#2 The developers are not anonymous and the background of each project team member is clearly stated or searchable on LinkedIn or some other professional platforms. It is nevertheless very important for you to know who the person behind this coin is. Other than that, study the background of each member.
If some of the members have completed successful projects in the field of blockchain or ICO before, it stands a better chance to be a legitimate ICO. A good sign of a potential ICO is if the developers link their LinkedIn, GitHub, or Twitter handle on the ICO’s website. Research their credentials and past posts on Twitter.
For every good project, team members should be constantly sharing updates and ideas on their website, social media platforms, blogs, and other public channels on the internet.
#3 In general, you should avoid uncapped ICO as you won’t know how much tokens will be created during the presale and crowd-sale. Simply put, imagine a traditional fundraise where investor asks “how much are you raising?” and the answer is “we won’t tell you”. A bad player may bet on a drop in the value of each token and eventually devalue your token holdings. Some projects drain the value out of your tokens by creating new tokens. Unless you are so sure and believe the people behind the project. Else, avoid uncapped ICO at all cost.
#4 Check how active this token’s community is on different forums such as Bitcointalk or their Slack. Most ICOs have dedicated Slack or Telegram support channels serving the community. Due to the open nature of these platforms, it is still difficult to identify legitimate representatives of the actual ICO. Although this may not be a good way to make sure the success rate of the ICO, you may still be able to post smart questions to the project owners and observe how the questions are handled professionally. The sooner you can identify and ask your questions, the better your chances are at getting them answered.
#5 You should be completely aware of what happens after the ICO is over and how the generated funds will be used. One of the most important questions each project needs to answer is what is the token for? The company should announce how will they manage the capital raised: how much will be assigned to the contractors, advisors, marketing, etc. All this information should be in accordance with the roadmap.
#6 It’s always a good idea to check out how equity and ownership are distributed among the founding members. According to Nick Tomaino, Principal and blockchain expert at Runa Capital, the founding team should always maintain a 10-50% share of the company to help create a healthy working environment for the company and its investors.
Hence, check their token distribution. If more than 50% of the tokens is planned to be distributed back to their own people, that’s suspicious.
#7 Do not invest unless there is a product or you can see clear signs of the product being built.
#8 Having a roadmap is also crucial for the success of the ICO. We need to know the plans and vision of the company before funding their project. The timing is also very important in order to justify the capital required in the Initial Coin Offering.
How to Invest in ICO?
First, you’ll need some cryptocurrency in order to participate in an ICO or crowdsale because these crowdsales don’t typically accept USD or other fiat currencies.
Most crowdsales these days have been running on top of the Ethereum network and so obtaining some ether is your best bet.
To buy into an ICO you’ll need a cryptocurrency wallet. Also, in order to receive the token that the ICO is selling you need to send the money from the same wallet where you have control over the private key.
Although any combination of coin and wallet may be requested for a given ICO, in many cases you specifically need Ethereum (“ETH”) and a MyEtherWallet (because many ICOs are token-based systems built on the Ethereum blockchain and is essentially exchanging “ether tokens” for rebranded “ether tokens”).