3 Simple Questions to Ask to Avoid ICO Scams

How to quickly evaluate an ICO or Token Projects

The Initial Coin Offering (ICO) market is not showing any signs of abating. The statistics are staggering. According to the Wall Street Journal, in 2017, more than $4 billion was raised via ICO’s. This figure continues to grow with recent reports of upwards of $2.3 billion being raised in the first few months of 2018.

ICOs have proven to be an incredibly rapid new means of fundraising, as evidenced by multiple strong issuances so far this year.

For the first time in recorded history, fundraising has been democratised; allowing non-traditional upstarts, without traditional-backed equity and armed with open-source production processes to raise millions, in some cases, billions of dollars.

However, with daily project announcements and those still in development, the market is continuing to create heightening levels of uncertainty and doubt for investors.

Exit-scams, fraud and digital Ponzi schemes consistently plague the news, drowning out the few genuine projects vying for their share of Investor attention and ultimately, their funds.

Scams or just minor setbacks?

Envion, a swiss project with a plan to bring clean energy and off-grid blockchain mining, successfully raised more than $100 million from 35,000 investors.

They seemed to be among the more legitimate projects out in the market. Reinforced by partnerships with German businesses, politicians and a University, Envion touted their stringent compliance standards and practices with both Swiss and US regulators. Envion tried its best to separate itself from all the other “shitcoins” flooding the market.

Despite all this, post ICO, there is still no functioning business in sight.

Deals that were purportedly on the table and announced have never panned out. Its founders are now accusing one another of fraud. Investors, some of whom had invested their life savings, are now out in the cold with the project stalled and likely to be dragged through lengthy litigation.

Pincoin was another, having raised approx. $600 million from 32,000 investors. Pincoin promised consistent returns to investors with the Team having actually commenced paying “dividends” in the form of tokens…then to only disappear.

These are just two examples of significant ICO failures that have duped investors out of their money and surely won’t be the last.

“Risks come from not knowing what you are doing” — Warren Buffet

The importance of Due Diligence.

One of the most enjoyable parts of investing is in doing the research and understanding more about all things Blockchain and Crypto.

Don’t be intimidated.

Good and proper due diligence is designed to help us understand both what currently exists and what may come to be.

Once you get past the first few initial hurdles of understanding some of the basic underlying concepts, you’ll be able to fine tune your radar on what constitutes a good project and help you to avoid being scammed.

This article aims to provide a high-level insight into the basic, ground level due diligence that should be performed on any token project by diving into its Purpose, People and Plan.

The Purpose

The “Why” is the heart of any blockchain project; this holds true with every business venture. This is where Project Teams can differentiate themselves and excel; with some projects having tangible use cases to those nearly launched and ready for adoption, to others, months away from any sort of competent and viable solution.

What we must first ask, and answer, is the most important question facing any new business:

Does this project actually solve a real-world problem and what pain point does it address?

Before, we can even begin to make any opinion towards the probability of success of one project over the next, we must be able to understand:

- Whether the project is fundamentally a good blockchain use case; and

- How the project’s blockchain will solve a problem that a centralised solution can’t solve

Think about it. If a project can’t clearly demonstrate how its solution is able to help multiple untrusting users coordinate themselves in resolving complex issues; then why would you need a blockchain?

Without gaining clarity on this point, the project, in all likelihood, will be faced with long term adoption issues or be easily superseded by a more efficient centralised solution.

When conducting an assessment on a project’s purpose, you should also consider:

1. How resolved or far along is this project in its development life?

2. How much of this project’s vision is attainable with current blockchain technology?

3. How much development still needs to happen before the projects minimum viable product is achieved?

4. How thorough and clearly defined are the projects technical specifications or is it all just fluff?

5. Who will it ultimately help and how?

The ideals, design and priorities of a project should always be aligned with the functionality of its product. Whether a company is looking for immediate funds or a broad investor base; they will always need long-term users and ready adopters to help build substantial value and scale.

It’s People

A question that is not being asked enough by new crypto investors is, “Who is the founding team behind this project?”

It is critical that you analyse the strength of the team and their ability to execute on the projects vision and goals.

Ask yourself:

- Do the Leaders/Founders paint a compelling vision, and have they recruited a strong talented community to help execute their vision?

- Do they have a demonstrated ability or track record in overcoming obstacles; technical and business?

- Are they obsessive about the problem they are trying to solve?

- Does the team possess the technical know-how to tackle the technical problems of the project?

You could easily filter out the majority of blockchain and crypto projects right now by asking these simple questions.

I’m sure we’ve all seen the many projects that feature team members with no blockchain experience who have yet to update their LinkedIn profiles (remember Ryan Gosling? That ICO actually raised $880k!!).

When going through a project’s white-paper, you need to almost act as your own private investigator, digging out bits of information on both the Founders and team and then attempting to piece them together, connecting the dots, to form a bigger picture.

Their Plan

When evaluating a Project or ICO, it is worth looking into what their strategic plan or roadmap looks like.

Roadmaps give you a sense of what the team behind the coin have in mind for the future, as well as telling you how confident they are that they will achieve their goals.

However, you shouldn’t blindly accept the contents of any roadmap — you need to analyse it; critically.

Many crypto projects fail to deliver on time and when they do the results are sub-par.

One of the tricks that poor or fraudulent ICOs like to attempt is that they promise huge milestones in the future as a means of assuring their audience that they are legitimate.

It can be hard to tell exactly what makes a manageable goal, so you need to research the company and see if they have done anything similar or comparable in the past.

Most roadmaps will give you dates for when they plan to reach a certain goal. Sometimes these are specific months, or perhaps they are broken down into quarters through the year.

When looking through these dates, you need to ask yourself, ‘Is this realistic?’

Here are some questions to ask when analysing a roadmap:

1. Is there a clear roadmap outlining a practical growth strategy?

2. Has the company delivered on their roadmap so far?

3. Does the company and the team have a good track record of achieving their milestones?

4. Do they demonstrate the ability to achieve the public roadmap they have set out to accomplish?

5. Does that team have a publicly available strong marketing strategy and measurable user acquisition goals?

It is crucial for the investor to look deeply into the roadmap to make an assessment about whether the project will be able to deliver on their promises.

Just because there is an idea out there that can change the lives of a billion people won’t count for anything if it is never finished or the resulting product is never heard of or used.

The Takeaway

Despite some questionable and loose practices of a minority yet high profile ICO’s, the crypto market is not all doom and gloom.

Take the time to perform research on each of your crypto investments, their purpose, understanding the team and what they are working to achieve.

Not only will you have greater odds of success, but you will be able to maintain the confidence necessary to stick to your positions; even when times appear scary.

It is troubling to see and hear stories of the many people who throw away money by buying into the hype or get stuck investing in a scam or shitcoin. They often lose their hard earned money to the Monsters simply because they don’t understand why they are investing in the first place.

If this article has resonated with you, please help spread this message so that others can understand how important it is to do good solid research before investing into an ICO or token project.

If you’re looking for up-to-date coin deep dives and crypto insights, head over to: https://tradecryptolive.net/fundy-rooms.

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