5 keys for evaluating Initial Coin Offerings (ICOs) and figuring out which may be worth your investment dollars
John Oliver’s clip on cryptocurrencies went viral with more than five million viewers. Most adored it, some condemned it for its irreverence. But Oliver had a point: The number of pump and dump scams are growing, aside from which there are more than 50,000 useless digital coins to date. Few people understand crypto. Most are driven by a FOMO fervor (Fear Of Missing Out). Scams like the absurd EOS by Brock Pierce make $1.5 billion, when it offers literally nothing. To contrast, it took Facebook seven years to raise a billion dollars, while EOS surpassed that in just nine months – despite the fact that Pierce described it as “a software startup that doesn’t plan to sell any software” and its coin as “having no purpose.” Tokens with absurd names like TitCoin, JesusCoin, TrumpCoin, InsaneCoin, DeepOnion proliferate. And the entire industry is fast exploding into a mania.
The thing is businesses that use the blockchain – the technology underneath Bitcoin – can occasionally surprise. Here and there, you find a company that’s like getting into Google on the ground floor. Other times, there’s an ICO that offers a product like Google Glasses – only, says Oliver, that’s the first floor. Then again, there are many ICOs that deceive you and throw you and your money out the window.
So how do you know which is which? How do you know which ICO to invest in?
Those are questions I get asked time and again. Which ICO should I trust?” How do I find good ICOs?
Wonderful questions! Particularly since Britain’s Financial Conduct Authority warned that even if the ICO is acting in good faith, investors still stand a high chance of losing their entire investments. At the same time, the European Securities and Market Authority declared that ICOs represent a high risk to investors. And both Joseph Lubin, co-founder of Ethereum, and Brad Garlinghouse, CEO of Ripple – two of the most prominent leaders in the blockchain space – warned that most digital token sales are copycats, if not frauds.
I started writing on blockchain in 2015. Over the years I’ve been recruited by scams, as well as by highly professional schemes, and, by now, I like to think I can tell the difference. Highly regarded blockchain entrepreneurs gave me pointers, too.
If I’d give you their warning signs, they are:
- No white paper or a lousy one at that – White papers make heavy reading, but they’re important to plow through to check whether your ICO will make you the Rockefeller of the coming generation. Questions to ask yourself include: Does the paper contain clear, thorough details about the company’s project, its token, its goals? Does its token serve a purpose that BTC or Eth cannot fulfill? How will the coin increase in value? How are they going to use your funds? How is the startup going to be governed? And what, exactly, is its USP? Does this company have competitors that may render its presence irrelevant?
- Weird roadmap – Any company worth its salt knows exactly where it’s going and and what it plans to achieve each quarter. Find the roadmap on the white paper. Some have it on their website, too. Some questions: Is it a solid plan that is sustainable and useful? Does their timeframe make sense? Where is the company right now? Do they have an alpha version/ a beta version? What are their goals? Too ambitious, or the reverse?
- Fossilized marketing team – Or one that’s been dug up from some bygone era, since you can’t track their names, come what may. Resumes that turn out to be spotty, or where the alleged programmer’s carried coffins for his living instead are just as bad. Check the web or the white paper for details of the marketing team. Questions to consider include: What are their LinkedIn credentials? What is their experience? What have they actually accomplished? Are all team members full-time, and do profiles mention that they work with the company? The same goes for ICO advisors. Do they help the company, or are they there to grab attention? As an aside, is the team actively engaged to answer questions?
- Barely tweeting Twitter (and other social media) – You’ll want the company to put your money to good use. The more followers they lure, the higher your yield will be. Therefore, ongoing, effective marketing is important. The easiest way to check whether they’re strutting their stuff is to type in the ICO’s name in BuzzSumo: Find the Most Shared Content and Key Influencers. A results list shows different social media, as well as how many times its marketing content was shared. You can also check for its chat programs, like Slack Channel, Telegram Chat, or Bitcoin Forum on Bitcoin Talk.
- Undernourished software development platform (GitHub) – This is the open-source code that the company uses for its business. There’s no need to know programming to make sense of this. Simply check how many people use the company’s blockchain ledger, how often they do so, how neat their code is – messy code reflects a flippant developer. A function containing more than 50 lines of code is a red flag, since modularity is important and makes the code more readable and maintainable. Also check how often they update their code, and how active they are at developing it. You can find these details on the commit logs, i.e.., GitHub’s history of its code transactions.
I’d also recommend you check the following resources:
- ICOAlert – The only comprehensive list, to date, of up-and-coming, current, and recently ended ICO’s. It is a great resource to find undervalued CryptoCurrency that may be valuable in the future.
- CoinMarketCap – A great place to research new investments. CoinMarketCap hosts real-time data of most cryptocurrencies, such as prices, volume, exchanges, and more.
- CryptoCompare.com – The resource for checking competitors and similar coin charts to get a general feel for the potential.
Finally, when in doubt try the following:
- The ANN (Announcement) thread on Bitcoin Forum – A message board where people discuss cryptocurrencies. New altcoins usually have a message on the board that you can spot.
- Google Search – Type in the name of the ICO with key terms such as “scam” or “con”.
- Reddit – Type in the name of the ICO or ask people on relevant Reddit groups. Bitcoiners love Reddit!
Your money’s too important to waste.