A Useful Guide for Evaluating Initial Coin Offerings (ICO)Taeyong Kim
The debate over cryptocurrencies have transcended all global boundaries and a clear verdict on it is best if left on the crypto enthusiasts to decide. There are two strong reasons for this. First being the unimaginable potential that Blockchain and cryptocurrencies offer and there is certainly not a faintest of doubt about it. Second is the massive investment opportunities that infant cryptocurrencies have to offer. If you are opportunistic than the second point will sound great to you. However, in case practicalism appeals more to you than the first point must be a reason good enough to invest in ICOs. In either case, ICOs are here to stay and will surely redefine the future. This blog will be a helpful guide to both sets of people. It is also hoped that this blog will be a useful guide for evaluating Initial Coin Offerings (ICO) for naysayers too (provided they change course by switching on the right side of history).
In case you are still wondering if this blog is trying to lure you with fabricated “too good to go” believe statements than it is my request to pay attention to the points mentioned below.
- Coinbase, stressed by rising trade volumes against soaring bitcoin prices (up to $19,000/bitcoin), crashed last year.
- Google and Richard Branson have together invested $40M on a Blockchain wallet.
- FBI made $48M by auctioning bitcoins seized in 2013.
- Ethereum Blockchain (ETH Coin) is radically changing traditional B2B and C2C marketplaces.
- Microsoft, Dell, Expedia accept BTC, ETH payments.
- Virgin Galactic accepts Bitcoin as payment.
- Ripple and Ethereum together constitute over $200B in market cap.
- Japanese Yen alone accounts for 50% of Bitcoin trades.
- Finland and Belgium have made Bitcoin VAT exempt.
- Switzerland has started accepting taxes in ALTCoins since Jan 2018.
The above facts must clear all pertaining doubts about the credibility and viability of Bitcoin, Ethereum and other alternate cryptocurrencies. But still, we cannot undermine the fact that more than 40% of the ICOs in 2017 were point blank scams. This means nearly every 1 out of two ICOs are worth neither your time and investment. But as every cloud has a silver lining, we now are equipped with insights to identify the rotten apples and make intelligent ICO investment decisions. A good advice that I give to most of my clients is to not just invest in any penny-ICO’s but understand the ICO process first.
ICOs are ways for blockchain and bitcoin startups to generate important upfront funds for technology procurement, manage operational costs as well as running marketing campaigns.
Blockchain platforms like ethereum are used to create and destroy coins. Participants can buy them using popular cryptocurrencies like BTC, ETH etc. Accrues from the token sale are used in project development. Here’s the step by step ICO process:
Step1: Founders announce the idea as well as day and date of ICO.
Step2: Some Projects host a pre-ICO to generate buzz and access the market.
Step3: A Proof of Concept is launched.
Step4: Marketing campaigns are run on social media about ICO hard caps and low caps
Step5: Investors buy tokens during Pre-ICO and ICO.
All ICOs try to attract maximum traffic on their official websites as well as offer benefits and discounts to early investors. Maximum participation is the norm of the day for a successful ICO. If the hard cap is not reached, conscientious ICOs burn the remaining tokens and return investor money. But not all ICOs are unflagging. Some are there only to run away with investor money. So how do you not fall prey to false promises? Here is a few know-how.
The Company Portfolio
It's important to know about the people in control of the strings. A background check of the team will help you better understand about the idea behind the ICO as well as judge credibility of the team. Most blockchain companies are startups, but they are backed by veterans and renowned entrepreneurs & advisors.
A look at the team portfolio will reveal important insights into the motivation and expertise of the team. A good way to start is with founding member Facebook, LinkedIn profiles and then search for contributions by them across various blockchain communities. A good team will boast of a balanced management and technical experts. Most ICOs will share details of the core team members on their website as well as the white paper.
Contemplate on the Idea
Put yourself in the shoes of the Founders and ask yourself if the idea really needs to be implemented on Blockchain. Look for alternate solutions to the one pitched by the ICO. If they appear more feasible and practical, STAY AWAY from the ICO.
Reading the Whitepaper is one habit that will pay you well during decision making. Gain useful insights about the ICO from the white paper including the target audience and market.
- Does the idea offer an innovative solution to a persistent real world or transaction problem?
- Does the roadmap appear practical?
- Will the project survive competitor onslaughts?
The above are some questions that must have an answer post-White Paper and Market research. Even if you are confused, the writing must be on the wall.
A closer look at the startup investments and token distribution will help you make an educated call rather than an intuitive one. Especially, the token distribution strategy of the startup will reveal a lot about the efficiency and long-term goals of the founders. A good token distribution will keep the development team in ownership of most of the tokens. In case, an ICO tries to attract you with attractive over the top benefits and bounties, take it as a Red Flag.
Another important parameter is backing by seasoned investors. A startup which is completely dependent on the token sales will not survive in the long run. Most fishy or scam ICOs have live by the sword die by the sword philosophy. Look out for ICOs that are not completely dependent on hard cap goals. Instead, the presence of a seasoned investor on their funding portfolio will attract ICO participants by manifold. If the fund distribution after the ICO is completed satisfies you, then you are good to go.
“To be heard, One Needs to Shout,” said Mohammad Ali. This could not have been truer for ICOs (especially the fair ones). But to find Music in the ICO noise is not an easy task. A perfect way to do this is to join community forums of popular ICO websites like cyberfund, ICO bench, Bitcointalk, Cryptocompare, ICO creed etc. A reputed ICO will have a very dedicated social media presence along with regular updates and PR’s across popular platforms like Medium or Twitter.
The Fishy ICOs
There are a couple of telltale signs if an ICO is fishy or not. These include:
- No white paper or haphazard white paper with no proper roadmap and plagiarised content.
- No working prototype and Uncapped ICOs.
- Look for proof of concept as well as commits made in the GitHub repository.
- Unlicensed ICO sellers.
Last but not least, when one is bombarded with tons of news ranging from soaring Bitcoin prices to billionaires made from ICO investment, there are chances that one is blinded by the false notion of having missed out. This can push us on an unhealthy investment spree. We may end up with a basket full of rotten apples. It is important to stay alert and well informed. And most importantly, remember that not all that glitters is gold. Hence, remember to not be persuaded the false glittering promises of million dollar investment returns. Put pen to paper analyze, review, plan and then invest in ICOs. You can check out Medipedia ICO that fulfills all the genuine ICO requirements.