Are you aware that nearly anyone has the capability to design a white paper, set up a landing page and attach a wallet address?
Yes, that’s reality. For this reason that anyone who chooses to invest must be extremely careful to avoid being a victim of scams. This does not mean that there aren’t any legit companies offering an ICO; however, it does mean that the investor must have a keen eye.
If you don’t know what to consider before investing in an ICO, then it could be quite a challenge. Even though investing in ICO can be risky, you can protect yourself as an investor by scrutinizing 5 key factors.
1) Team Composition
Is the company willing to publish information about its team members?
Most legitimate companies initiating an ICO have no problem with providing investors with information about their team.
However, you should ensure that team bios are detailed, and fully outline the team member’s past experience and accomplishments. You should look at their level of experience in the field of cryptocurrency, and what their past records say about them.
Or if the team member is new to the crypto world, they should still be able to provide detailed information about their skill set, and how it contributes to the overall goal of the ICO.
2) White Paper
This document is probably the most important element in an ICO. This document describes everything about the project which includes the idea, technology driving it, dissemination of tokens and how it is going to be utilized. It should also include the rights of the users and other important information.
The white paper should be well structured with the good logical flow. If a company is offering an ICO with shallow details or fails to provide a whitepaper at all then, it should arouse some suspicion.
3) Community Communications
What is the frequency of communication with their future investors? Do they display accountability?
A company should provide potential investors with answers to questions via social media or the company’s blog. Analyze the company’s answers to questions interested investors have about the technology behind the ICO. How viable is the project? What trends are likely to influence the project?
Does the company communicate how they intend to utilize the funds to be raised? Is the reason convincing enough?
You should only invest when you are satisfied with the answers they provide to these questions.
You should consider which kind of blockchain their project is designed on. Many startups use ERC20. If not, then they must be using a custom decentralized blockchain — an impressive proposition.
However, 91% of largest tokens circulating through market capitalization use the Ethereum computing platform, due to its simple and open architecture. If the ICO you’re considering in investing in doesn’t use Ethereum, you should question why.
5) Suitable Token Dissemination
You need to know how many tokens are offered for presale and the number of ICO participants, and how many tokens the team reserves for themselves.
Where the value of every token is considerably high, and billions of them are circulating, then the company’s funding objectives are not realistic.
Knowing the value of each coin in line to its foundation and how they are shared among investors is important.
It is important for you to understand that fundraising through ICOs is risky. You should therefore under no circumstance invest using an amount that you cannot afford to lose.
By thoroughly investigating the 5 criteria listed above when you consider any ICO investment, you will reduce your level of risk.