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The Definitive ICO Checklist: What To Look For, And What To Avoid

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The Definitive ICO Checklist: What To Look For, And What To Avoid

It’s a tough market out there for ICO investors. Just months ago, the rising popularity of bitcoin helped just about every company with an ICO quickly reach their funding goals and enjoy a token with steadily increasing value. Now, the situation has been shaken up by regulatory efforts by countries like China and South Korea. Additionally, people are becoming more aware of the plethora of “pump and dump” schemes, which were largely the reason for central bank intervention in the first place.

Almost anyone can create a white paper, put up a landing page and post a wallet address. Those hunting for quality ICOs to participate in must be vigilant of scams, an unfortunate truth both for potential investors and the companies who have a quality product to offer. While it might be slightly harder to find the diamonds in the rough, it’s still very possible. Best practices are still emerging, but the expert investors use the strategies below to find good opportunities.

What to Look For

  1. Team Composition: The serious companies who are launching an initial coin offering will have no qualms about publishing details about their team. Expect a relatively thorough biography about each member because those with a real solution to offer are proud to display their credentials to their angel investors. Look for a strong development team, people with cryptocurrency experience, and an executive that has exhibited past successes. 
  2. The White Paper: This is arguably the most important piece of a serious ICO. The white paper describes every aspect of the project itself, including the concept, the technology behind it, the dissemination of tokens and how they will be used, as well as user rights and other crucial information. The summer Civic token sale, a company dedicated to identity verification, is a great example of how a document should be logically structured by first presenting an assessment of the problem before delving into how the company plans to utilize an ICO to address the market’s needs. An ICO without a white paper, or one without deep details, should put up red flags immediately.
  3. Community Communication: The team must communicate with its audience frequently and illustrate their accountability to future investors. This is usually accomplished through social media or their own blog. Look for in-depth answers to questions about the technology, its potential in the market, and discussions about industry trends that may change the landscape. Speculative language about the potential price of the token should be avoided at all costs. Instead, look for pages that clearly communicate the value proposition and why people should participate, akin to digital wallet developer Cryptopay’s ongoing ICO. The company discusses the purpose of the fundraising efforts and how these funds will be allocated to build infrastructure that supports its community of users.  Furthermore, the constant interaction with their social media communities helps Cryptopay build additional credibility.
  4. Foundation: Which blockchain is the project built on? Unless they’re built on a custom blockchain (which is already an impressive proposition), most will use ERC20, which is ethereum’s smart contract chain. Of the 100 largest tokens circulating by market capitalization, 91 currently use the ethereum platform, benefiting from its relatively straightforward and open architecture.  It’s important to understand to which cryptocurrency the company’s tokens will be pegged, and their relative value.
  5. Favorable Token Dissemination: Ideally, it is easy to understand exactly how many tokens are available to presale and ICO participants, as well as how many the team keeps for themselves. If the value of each token is relatively high, and there are billions of them in circulation, the company’s funding goals are unrealistic. The value of each coin relative to its foundation (like ethereum), as well as how they’re split among investors, is crucial. The best companies will “burn” (destroy) all tokens unsold during the investment window.

What to Avoid

  1. Bad Language: No, we don’t mean swear words. When a company fundraising with their coin publishes in speculative (salesy) language, watch out. If they encourage you to act out of FOMO (fear of missing out) related to the rising value of their token, they likely aren’t serious about the function of their underlying concept at all. Pump and dump schemes are notorious for this.
  2. Flimsy Assets: Shallow, one-page websites void of team profile or social media links are dangerous. These companies may be trying to remain anonymous whereas a blockchain-based solution by necessity must be transparent.
  3. Buzzwords: It’s smart to read many white papers, websites, and digital content from legitimate ICOs. This way, you’ll learn the kind of language that means authenticity. Sometimes, the fakes can be very convincing. Many tout their product’s decentralized nature, secure transactions, and improvement over traditional finance, but these are default benefits of using blockchain and offer nothing new.

It can be hard to find a winning ICO these days, but it’s far from impossible. Smart investors can still participate in exciting new technologies and be a part of an exciting future technology, but playing it fast and loose is a quick way to get scammed. By doing your homework and researching an ICO, you can learn a lot about the company and determine if they’re worth your money.

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