How to determine whether an ICO is a scam
Intro
Whether you’re new to the crypto world or a seasoned HODLer, you’ve probably heard of Initial Coin Offerings or “ICO’s”. You’ve also probably seen the enormous interest in them and how investors are able to make profound profits by finding undervalued gems (or sleeping giants that have not yet caught mainstream attention). Like a Kickstarter, ICO’s allow companies to generate millions of dollars of investment capital in just a few minutes without having to go through the painstaking and time consuming process of registering with government regulations like the Securities and Exchange Commission (SEC). ICO’s also allow investors the opportunity to gain enormous profits by the ability to purchase coins (or tokens) at minimal cost (normally!).
However, where there’s money flowing, there will also be scammers looking to trick and rob people of their funds so it’s critical to be able to analyze whether an ICO is a scam or a legitimate project. A prime example is the project Confido, where the team disappeared or “exit scammed” after raising just under $375,000 of investors’ funds. Gone, and never heard from again with everyone’s contribution. Nobody wants to be in that position. So how can you feel confident you’re investing in a legitimate project? Keep reading and we’ll discuss the key factors to review before investing one Satoshi into any project.
Problem Being Solved
Before throwing your money into a project, make sure you understand what problem they are working to solve. Is this a real problem that needs a solution? Does their solution make sense? Does the solution require Blockchain? If not, does Blockchain offer a better solution over a traditional centralized method? It’s also easy to get carried away and think Blockchain is the solution for everything, but that’s not always the case. So as you review more and more projects that flaunt they have “revolutionized” an industry, think to yourself whether their goals are achievable with their proposed solution and whether it’s realistic. For example, if a company is stating they are bringing decentralized massages into the world, is it really necessary to utilize Blockchain for this type of business? Does it even offer a benefit?
Team and Experience
One of the most important aspects of a project is the team, period. Who is behind the project and who is supporting it? Who is the Founder, CEO, developers, etc.? Are they real people? Do they have LinkedIn’s? Check them and verify. If they are not well known, what other projects and/or companies have they been apart of? Do they have successful track records? Also, verify if there are any partnerships with other companies. This is a big bonus if they are partnered with reputable companies. For example, Stellar is partnered with IBM, one of the largest technology companies in the world. You know IBM won’t partner with just anyone, so a good partnership is good key to vetting projects.
Answering these questions will help determine the likelihood of the project’s success and most importantly, whether or not the ICO is a scam. A reputable, experienced team is lot more likely to bring their project into fruition and make it a success. Remember that.
Working Product
Does the project already have a working product? If so, this is a huge plus as it shows that there is a working foundation and it’s not just an idea or “vaporware” that has not been developed. The team has already spent time, energy and money into creating the foundation before asking for any capital to take the next steps and grow.
On the other hand, if there is no working product before the ICO is launched, this doesn’t necessarily mean the ICO is a scam but it should signal you to dig deeper into the project. For example, you should investigate further by examining their roadmap and how far along they are in releasing a Minimum Viable Product (MVP). Also look at how their ICO will utilize the funds raised and how they will allocate their funding.
Whitepaper
A whitepaper is arguably the most important component of any ICO. Whitepapers describe the problem a company plans to solve, their solution, their product, token implementation (token’s function, utility, economics), the team, and the token deployment and distribution plan. In addition, be weary of “copied” whitepapers. There have been accusations of companies plagiarizing whitepapers (e.g. TRON) so, just because it sounds fancy, don’t naively invest. Keep digging!
Don’t neglect reading (and analyzing) a whitepaper — it will be one of the strongest elements in identifying whether the ICO is legitimate, because at the end of the day, anyone can write down an idea, mix in some buzzwords and call it a whitepaper. Research!
Hype is Irrelevant
It’s true; hype can attract thousands of investors and drive the price of a coin to astonishing levels. It’s also true that many projects and ICOs in the cryptocurrency world are driven by speculation without having an actual working product. But don’t let hype (or FOMO) pull you into an ICO that doesn’t have underlying substance. As we’ve learned from the 2018 crypto “crash”, there have been many hyped ICOs that have gone nowhere and could potentially have been scams. Time will tell.
Conclusion
It’s no coincidence why you see the saying “do your own research” everywhere in the crypto communities. In this world, if you want to survive, you must do your due diligence and vet the projects you want to invest in. This is the Wild, Wild West of modern times and although it can be very exciting (and profitable), always do your research and review the aforementioned key points before investing in any project. It’s said that 90% of the projects out today will fail, so pick your projects wisely and be ready to adapt instantly so you can grow with successful 10% and be part of this decentralized revolution. We know we will.
The 8760 is a hyper-flexible network of high level experts that share common culture, infrastructure and experience in the TGE & Consensus space.We work on projects ushering in the fourth industrial revolution, zeroing in on their Strategy, Investment, Marketing and Creative.
