For those of you who are unaware, a new trend has developed as of late in the cryptocurrency world. This trend is known as the initial coin offering (ICO). These are, more or less, cryptocurrency versions of an IPO (initial public offering). There have been a lot of ICOs lately, and some have had incredible results. Gnosis, an ethereum-based prediction market, raised $12 million in just 10 minutes! This $12 million represented 5% of all available tokens, giving Gnosis a valuation of $300 million! The Gnosis ICO has certainly not been the only one recently, however.

Ok, so how exactly does an ICO work?

The ICO itself consists of a certain available of all amount tokens being auctioned off. The tokens which will be provided and given value in the near future are offered in exchange for a cryptocurrency that already has liquid value (usually bitcoin or ethereum). While this platform offers a great method to distribute new cryptocurrencies and other blockchain based projects, it also offers a way for fake "moneygrab" schemes to, well, grab a lot of money. This is what a lot of ICO's are, on varying levels of scam.

The Financial Times referred to ICOs as: "unregulated issuances of cryptocoins where investors can raise money in bitcoin or other [cryptocurrencies]". The key word here is unregulated. In the ICO game, there are no rules (at least not yet), which makes them extremely risky and extremely easy to exploit.

How can I avoid these "moneygrab" scheme ICOs?

There are a number of indicators and signs that will tip off a project that is planning to have an ICO as a scam. The first of these can be found in the white paper. Here are some questions that you should be asking yourself when you read it:

• Does the white paper provide actual technical details about the project?
• Does the white paper provide a roadmap of the future plans for the project?
• If the white paper does provide this roadmap, are the goals realistic? 
• Does the white paper provide a detailed explanation of how the funds from the ICO will be spent to benefit the project? Is this spending plan realistic?

An example of a white paper that answers all of these questions well and is overall a strong document about the project is the Gnosis whitepaper: https://gnosis.pm/resources/default/pdf/gnosis_whitepaper.pdf

If the white paper does not answer these questions, or provides unrealistic or not well thought out answers, this is a suggestion that the ICO could be a scam.

Another factor that should be looked into is the developers:

• Who are they? 
• Are they well known community members who have been involved in similar blockchain projects in the past? 
• Are they unknown characters who bought a twitter account to promote their new project? 
• If the developers aren't already big players in the community, do they at least provide detailed information about who they are and what other past experience they have?

Some other things to ask:

• Does the ICO process seem rushed?
• Is there any interesting new tech involved in the project? Or is it just a project with nothing new to bring to the table trying to raise loads of money?
• Has any kind of beta demonstration, video, code snippets, etc. been provided for the project? 

In conclusion:

The ICO is a great way for blockchain-based projects to raise money for the project. However, the lack of regulation makes them very risky and susceptible to exploitation. If you are willing to take the large risk of investing in an ICO, be sure to do your homework (use this post as a list of guidelines) before you invest. Buying into an ICO can provide great rewards, but this comes at the cost of extremely high risk. Before you invest in any ICO, determine if the project brings new tech and useful features to the table, or if it is likely to be a "moneygrab" scheme created by anonymous developers looking to get rich quickly.

                                                                                                                                               

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