ICO’s – How to identify the good from the bad

ICO’s or Initial Coin Offerings have become a huge topic of interest in the world of fundraising these days. More and more business entities and the common man are realizing the opportunity that this form of raising money is bringing over the traditional IPO’s. Businesses are now moving over to tokenomics where the method of tokenization is preferred over the traditional stock/share. These digital tokens might either be a cryptocurrency in themselves or just a digital token utilizing another blockchain.

However, as every coin has two sides, similarly one has to identify how to find Initial Coin offerings worth investing in. There have been ICO’s like Tezos which raised more than $230 million in a span of less than a month but have already faced severe legal issues. The Mycelium ICO is an example of pure greed where its team members disappeared after the ICO and the funds collected were used for their vacation. Having said that, there have also been successful ICO’s like Power Ledger that not only raised a solid amount of $34 million but also got $8 million in funding from the Australian Government along with their partnership with Indian IT giant Tech Mahindra.

Keep in mind: Due to lack of regulation, ICO’s are risky but if chosen well enough can be profitable in the long-term.

Explained below are some of the criteria that one has to study before deciding to make an investment in an ICO.

1. TEAM Composition 
   

It is crucial that the team behind the ICO have enough experience and qualifications which relate to the industry in which the ICO project is being launched. Some of the good places of making a market research on the team composition in the ICO are LinkedIn and Twitter or other professional platforms ONLY. It would be beneficial if their advisory board have members who also have relevant experience in the cryptocurrency space.

1. Bitcointalk.org Social Media Thread
   

Best to start off by checking the project announcement on Bitcointalk.org

One must take care of low ranking writers on this platform and only check quality conversations between experienced people asking questions and the developers of the project. It is a bad sign when members from the team of the ICO project are not collaborating properly with questions thrown at them. A good way to easily test the project is to use Ctrl+F on the keyboard and search for words such as ‘scam’ on the thread.

1. Venture Capital Investments and Roadmap
   

Blockchain Capital and Fenbushi are some examples of venture capital firms in the crypto-space. However, one can also check if there are other venture capital investments involved in the ICO project. The Roadmap of the project should give one a clear idea of the timeline of it and when stages of the project shall be concluded moving on to new updates.

1. Social Media Community
   

It is very important to check the social media presence of the ICO on platforms like Twitter, LinkedIn, Reddit, Facebook and as many as possible. The posts MUST be of high quality and show the professionalism of the company launching the ICO over just having fake likes/followers with a number of reshares/retweets just for the bounty rewards. More important to have a quality team at the company over getting too much hype from the bounty. The atmosphere must be positive in these social platforms. The company also must have an open slack community where investors can come together and discuss updates and other things with the ICO team directly.

1. What exactly is the use of the new digital token/ cryptocurrency? Is the blockchain needed? For what purpose?
   

The ICO project must explain why the new token/crypto is needed when there is already bitcoin or ethereum available. Is the ICO having its OWN BLOCKCHAIN? Or is it just an ERC20 digital token using the ethereum blockchain? How will the blockchain be useful in the respective scenario? These questions MUST be answered.

1. Auditable amount raised with a hard cap / Unlimited cap 
   

Projects like the Bancor Protocol were uncapped and raised $150 million in just a span of 3 hours. Tezos was another one with an unlimited cap and this one faced serious legal issues. It is much safer if the project has an auditable amount for fundraising of the ICO. But having said that, cryptocurrency exchanges have less interest in ICO projects that have managed to raise a very small amount.

7 – Token distribution – when and how
Greed can be defined by a high token distribution to the team members,

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