ICO - Great opportunity or Scam?

Investments in ICOs are probably the most risky type of investment in relation to investing in cryptocurrencies in high risk in general. But what is ICO at all? How do I assess ICO?

What is ICO

ICO, which is short for Initial Coin Offering. It is a type of crowdfunding, and in simple language - a fundraiser. The team running a specific project shares its business plan contained in a document commonly called Whitepaper. However, to implement their plan they need funds. Therefore, they announce a fundraiser in cryptocurrencies (usually ETH). In exchange for the funds transferred, the team offers project related coins or tokens, i.e. shares in the project. The assumption is that as the project develops, the currency will gain value so that initial investors will multiply the funds invested.

What to look out for when you make verification ICOs

Appropriate examination of the project before investing will obviously not eliminate the risk, but will eliminate at least a large part of the most risky ICOs. It is worth taking the time to minimize the risk as much as possible, and get to know the project in which we intend to invest.

** 1. Website rating **

Nowadays, a website is a business card of a company. This is often the key place to submit an offer, and in the case of ICO it is often also the "fundraiser". The website should be legible, transparent and pleasant to read. The creators should ensure that the user who is a potential investor (!) Finds there quickly and easily all necessary information provided in a way that encourages to invest money in this project. However, it often happens that ICO websites are simply weak, made quickly and do not contain basic and important information. This page is not very good proof of a given project. In the case of ordinary scams (cheats), their "creators" often just don't want to invest to make a good website. That's good, because at this stage we can eliminate some projects that are created only to extort money from investors.

** 2. White Paper **

A website is a showcase and a place to make an initial offer, while White Paper is the right and specific offer. It must (!) Be done simply well. It must contain all information relevant to make a decision on investing funds. In addition, this information should be presented in a legible, transparent and understandable way. This document should: Completely answer the question of what a given ICO does - its goals and assumptions, Explain the rules of collection - division of coins / tokens, prices in individual sales phases, distribution methods, Include roadmap - i.e. plans for the development of the enterprise, Introduce team members Include relevant legal information. In the world of crowdfunding, e.g. Start-Ups, very short presentations called professionally Pitch Deck are very popular. They differ mainly from Whitepaper in volume. These are short forms of communication, often presentations or short recordings - up to a few minutes. Pitch Deck allows you to familiarize yourself with the project in a short time and provide enough information for the investor to know if he wants to delve further into the subject. While they are not widely used in the world of ICO, if they appear, they are undoubtedly an asset and well testify about the team and its approach to business.

** 3. Usability - project goals and assumptions **

We have already familiarized ourselves with the website and documentation presenting the project. At this stage, we should already know exactly what the goals and assumptions of the project are, because, among others, such information should be provided to us by White Paper. Now we need to assess whether it makes sense at all. Is the product supposed to be innovative? And if so, is its implementation within the deadline (according to roadmap) possible at all? Or is it another product / service that many already on the market? It is worth asking the question why the authors of the project chose ICO as the crowdfunding method. This is important because it directly connects with the question of whether this project really needs to be implemented using Blockchain technology, or whether the local bull market related to ICO is simply used, and the team could also exhibit at Kickstarter. If the project realistically uses the technological possibilities associated with cryptocurrencies and would lose its meaning without this technology, then it speaks in favor of the project. We should get as much information as possible about the design and usability of the project. If we do not have the proper knowledge, we can easily become a victim of FOMO, which although you can earn quite a good income, but you need to be aware of what you are doing, and not be its accidental victim. FOMO - Fear of Missing Out - fear of being missed - Fear of missing a great investment opportunity. People who fall victim to FOMO start buying a given asset without any rational reason - just because its price is rising. This phenomenon can lead to huge price increases, even though the project gives no rational reasons for this. People buy because the price rises, the price rises even more because people buy ... Until someone says check.

** 4. **
The team is the most important - almost - only marketing is more important. It is people who really create a product or service in a given ICO and it all depends on them. ICO creators should ensure full transparency in this field. Already on the website should be easily available information about what people are behind the project and who these people are. For example, links to Linkedin or FB of individual team members are a great idea - provided, of course, that these profiles are reasonably well maintained. Projects that only aim to get money quickly are often anonymous. What's more, "creative scammers" use imaginary names assigned to photos of people from Shutterstock and even create fake social media profiles. It happens that the team exchanges real - existing people, but completely unknown anywhere, i.e. without experience, who simply lie about themselves. It also happens that images of famous people, influencers or specialists are used without their knowledge. It is because of this type of fraud that it is important to apply and check the ICO data team as accurately as possible - do these people really exist, do they know they are participating in such an ICO, or do they have any experience they boast about on the website.

** 5. Code repository and technology issues in general **

Many ICOs - especially in the case of coins and not tokens are open source projects (it is absolutely no obstacle to earning or increasing the value of Coin). As such, they should make the code public on Github or other such site. Although the code itself, its functionality and quality can only be assessed by specialists, even without knowing programming, you can assess the activity of the development team, the speed with which they respond to reported errors and the frequency of releasing updates, as well as communication with people.
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** 6. Token, its quantity and sales stages **

Another important information that we should know is information about tokens / coins.

  • How many tokens / coins will be made?
  • How many of them will be owned by the team?
  • How many will be distributed as part of the campaign?
  • How many will go on sale?
  • Will their full quantity be available immediately, or some of it can be obtained through mining, for example?

** 7. The use of ITO funds **

In the process of screening the project of interest to us, it is worth paying special attention to the financial aspect of the project. If Whitepaper reliably describes what the team intends to spend the received money on, it is good evidence of a given project. The essence of this point is an attempt to assess the legitimacy of the amount that the team wants to collect, i.e. Soft and Hard Cap. Soft Cap is the minimum amount after which the project will enter the implementation phase. It is important whether the team guarantees a refund of funds sent for the project if the Soft Cap is not reached. Hard Cap is the maximum amount that the team wants to raise to meet their goals. This aspect is one of the key to assessing whether the ICO in question is not a scam. For example - a team that wants to create an application for e-commerce applications does not need amounts of several hundred million dollars to start their project. So if Hard Cap is such an amount, it only indicates the incompetence of people who performed the business plan and cost calculation. It can also be a signal that the group intends to collect the highest possible amount and will not implement the project at all. Apart from the context of the legitimacy of capitalization, and taking into account the purpose of investment in ICO, i.e. earning, one can draw a simple conclusion. If the ICO is written at $ 100 million, then in order for it to return at 100%, its valuation must increase by another $ 100 million. When the project started with amounts of several or several million, the probability of large increases is many times higher. When analyzing this aspect, it is helpful to look at the capitalization of the entire cryptocurrency market. Then you can quickly assess where the project must jump to bring a certain rate of return on investment. The lower the ceiling from which it starts, the greater the growth potential, which is why you should be interested in projects with Hard Cap up to $ 15 million. Higher amounts need solid motivation.

** 8. Company, registration details, jurisdiction **

There is usually a company - corporation behind ICO. It is important that the data of this company are easily accessible. All company details should already be posted on the website. We should be able to easily obtain such data as: company registration number, country of registration, address. In addition, it would be good to know of course contact details such as phone number or email addresses. It is also important that the company is registered in a reasonable (from our perspective) place. In case of problems, it will undoubtedly be easier for us to assert our rights in disputes with companies registered in Poland England or other EU countries than with companies registered, e.g. in China. In addition, companies registered in so-called Western countries can inspire greater confidence due to the entire legal environment, supervision (at least in theory) which they are subject to, or procedures they should implement.

** 9. Legal procedures **

This is mainly about AML (Anti-Money Laundering) and KYC (Know Your Customer). Here, I will probably discourage many "crypto idealists" from each other, but we operate in one system, and the companies that use these procedures according to regulations are simply more reliable from a legal point of view. It is easy to imagine the following situation - the project in which we invested did not use the procedures mentioned above. Despite this, its development is progressing and further points from the roadmap are being filled. Suddenly, as a result of interest of the relevant state authorities, it begins to have legal problems because it did not apply the appropriate procedures. Such information can drastically affect the listing and even lead to the solution of the project and its delegalization. So ICOs that do not use AML, KYC, or other procedures carry two risks - on the one hand, there is a risk that it was created as a "money laundering", on the other hand it may have problems in the future.

** 10. ** Marketing

As mentioned before, marketing is probably more important than the team behind the project. This can be considered a sign of the times, and in the world of cryptocurrencies and ICO this relationship can be seen particularly clearly. Good marketing can sell even the worst product, while no one will pay attention to the best product with poor marketing. The ruling abstraction on the cryptocurrency market is evidenced by the fact that in the first hundred largest projects in terms of capitalization, under forty has a finished product and adheres to the deadlines arising from the roadmap. At the same time, there are many ordinary clones of pre-existing cryptocurrencies in the same group. These copies bring absolutely nothing new in terms of usability, security or technology. Therefore, during the ICO analysis, it is worth paying attention to whether the team cares about good marketing, because it is a key element determining whether a given project will succeed. In this context, a large and active community around the project is also important. You should also read the opinion of people about the project. Guided by opinions, you should take into account the people who are emotionally oriented to a given project, or who benefit from advertising a given project (as part of marketing activities, for example). After all, it is worth knowing what the mood is in relation to a given project. In addition, there is a possibility that other people will catch some significant flaws in the project, which we will ignore, and thanks to which we will be able to verify our view.

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