10 Key Factors for Measuring Initial Coin Investment (ICO)
Initial Coin Offering (ICO) is a fundraising method in which new cryptocurrency tokens are sold that have liquid value.
As a rule, a certain percentage of tokens is sold to ICO participants, and the rest is stored for the needs of the company (for private investors, etc. In different ICOs, the conditions may vary).
ICO allows both large and small investors to invest in projects that they like.
Last year, several thousand successful ICOs were conducted. The motivation for project developers is obvious.
The motivation for ICO investors is that the price of the token in the future may become higher (or even much higher) than during the ICO.
ICOs are indeed a hot topic among cryptocurrency investors. Recently, Hdac and Filecoin have collected amazing amounts of 258 and 275 million dollars, respectively.
The success of an ICO depends on many aspects. Investors should keep in mind the following key elements discussed in this article.
It is right to mention less successful stories, such as the ICO of the Mycelium project.
After collecting the money, the team members simply disappeared, and later it was reported that they used the funds received to pay for the vacation.
One reason for this may be a lack of regulation. Just a few days ago, $ 7 million was stolen at the launch of the CoinDash ICO.
Right before the start of the token sale, their website was hacked, and the ICO wallet address was changed to the address of scammers.
An important warning to read before we get started: ICOs are a very risky way to raise funds. Never invest funds that you cannot afford to lose completely. Keep in mind that due to the lack of regulation, it will be difficult for you to get your lost money back in case of any malfunctions.
1 – Team roster
Find out everything you can about the team, especially about developers and advisory advice. Check each team member for relevant experience.
Check their names with a search engine. Look at their LinkedIn profiles. Look for famous names among the members of the project advisory board.
Find out if the team has any experience in the field of cryptocurrencies and, more importantly, in which projects or ICO they participated and what impact they had.
2 – Discussion at Bitcointalk.org
A good starting point for research is the Announcement of Project (ANN) thread on the BitcoinTalk.org forum, which is the largest forum on issues related to Bitcoin and other cryptocurrencies.
It is strongly recommended that you carefully read the messages. In this thread, answers can be given to all questions that arise for investors (or they can be left unanswered).
It is very bad if developers avoid answers to certain questions or do not cooperate at all.
It also does not hurt to send developers a personal message to find out how easily they get in touch.
Under each post on the Bitcointalk forum, the rating and degree of activity (number of past posts) of the sender is indicated.
Beware of newbies and low-rated writers. Reputation today is very important and significant.
Pay attention to the comments of experienced authors, as well as look for negative reviews, which can sometimes serve as a good warning.
Press Select [All] to view all comments in the topic, or CTRL + F (Windows) to search for keywords such as “scam“, “co“, “MLM“.
3 – Project development stage and venture investments
Evaluate what stage the project is at. Does he have anything other than a white paper? Beta version? Does he have a released product with at least limited functionality?
Give preference to projects that have at least “a few lines” of working code, although many ICOs have proven that success can be achieved without writing code.
Venture capitalists (VCs) tend to invest in projects early on. This information can usually be found on the home page of the project website.
The project is clearly worth considering if he is interested in well-known cryptocurrency venture companies such as Blockchain Capital or Fenbushi (owned by Vitalik Buterin, founder of Ethereum).
4 – Community and Media
It is imperative that the project has an extensive open community, for example, a public channel on Slack, accessible to all investors.
Openness is just as important for building trust as having code on Github. Try to understand the atmosphere within the community. Look at the size of the community and its activity.Other sources, such as Reddit, Twitter, or Facebook, may also come in handy when evaluating a project. Keep in mind that messages may be promotional.
It is common practice to launch an advertising branch in which users are rewarded for disseminating positive information about the project in order to increase audience reach.
Fees may also be paid for assistance with translations. These bounty branches stimulate hype around the project, but they are not very objective.
On the other hand, some investors participate in the discussion only in order to earn tokens.
5 – Why do they need a token? Do they need a blockchain
ICO is the creation of a new dedicated token for a project. One of the most important questions that need to be answered when evaluating each project: why do they need a token?
Why can not I do with Bitcoin or Ethereum, using them as project tokens? Yes, many projects are ordinary scammers.
Of course, it is impossible to conduct an ICO without a special token. The same question must be asked regarding the use of blockchain technology in this project.
6 – Unlimited / Limited maximum investment
In the early days of cryptocurrency ICOs, the difference between an open and a strictly limited maximum investment size did not have the same effect as in today’s ICOs.
With open capitalization, investors can send an unlimited amount of funds to the ICO wallet of the project.
The more coins put into circulation, the less unique are your tokens for trading after an ICO – due to less demand.
As ICOs become commonplace in the cryptocurrency field, the amounts are often collected simply huge.
Take a look at Bancor – this project raised an incredible amount of $ 150 million in just three hours.
This led to the fact that investors did not receive any interest income. Keep this in mind when participating in an ICO without a capitalization limit.
On the other hand, you should not be the only one who invests in the project. Exchanges show much less interest in projects that have raised few funds, since the sale of such tokens after the release is sluggish.
7 – Token distribution – When and how it happens
The greed of the project developers can be determined by the high percentage of tokens intended for team members.
For example, if it is more than 50%, you should be wary. For a good project, the distribution of tokens is associated with a roadmap.
The fact is that each stage of the project requires a certain amount of funding.
Keep track of the token distribution steps. Some projects simply issue tokens a few hours after the end of the ICO.
Some other projects need to develop a beta version before sending tokens to buyers.
If you look at the percentage increase in Etherium (for one year from the ICO until the token distribution it turned out about 500%), Augur (a little over a year, 1500%) and Decent (8 months, 350%), sometimes this break creates very positive moods around the project .
8 – Evaluation of technical documentation (White Paper)
Most typical investors do not actually read the technical documentation at all, although it usually contains all the necessary information about the upcoming project and ICO.
Be sure to read it, at least the main points. Pay attention to the strong and negative aspects and compare them with your own research.
After all, project documentation is a silver platter for potential investors.
After reading it, you should easily answer a simple question – what value does this project bring to our world? You will also know what you are investing in.
9 – Code Quality – Meet Github
If you have a little programming experience, you should use it here. The professionalism of developers can be understood by analyzing part of their code.
Even a person without programming knowledge can appreciate the quality of the code by looking at its design.
Another good indicator is the fair use of comments. Avoid sloppy developers. The code snippet reflects the developer’s attitude towards work.
Next, another indicator is the length of the function. If a function contains more than 50 lines of code, this should alert you.
Modularity is very important, as it makes the code more readable and makes it easier to maintain.Cryptocurrency projects, as a rule, are open source. This builds trust among project community members by encouraging community developers to make suggestions or improvements.
Open source projects provide users with the ability to view logs in commits. Developers slangs refer to parts of the code sent to the Github repository.
You can see each commit by clicking on the inscription “366 commits“. This allows you to examine each change. On the “Insights” tab you will find more general information about the activities of developers.
This tab displays a chart showing the number of commits per day.
Under the chart, you can see the activity of each developer individually. This information is key to learning about the development team. In recent months, the popularity of smart contracts based on ERC-20 Ethereum has been growing among ICOs.
These tokens can easily be stored in Ether wallets (for example, MEW – Myetherwallet), sometimes exchanges are not required for their exchange, and they usually have high liquidity.
10 – Summary
ICOs as a fundraising method will continue to become more and more common. The selection of projects will constantly increase, so evaluating these projects will become even more difficult.
Before making an investment decision, it is important to study as much information as possible and write down all important aspects, both positive and negative.