In just a few short years, the conversation about blockchain and cryptocurrency investments has completely changed. Once seen as among the riskiest of financial investments, initial coin offerings (ICOs) and related blockchain and cryptocurrency opportunities are increasingly seen as smart bets. If you can find one that lives up to the hype, that is.
There are plenty of bad ICOs and crypto-based investments out there. Some are outright scams, preying on investors who lack the knowledge and experience to know which ICOs to avoid. Other projects may have good intentions and interesting ideas, but simply fail to deliver on their lofty goals and promises due to poor planning and organization.
Before you invest your hard-earned money in any ICO, it’s worth spending a little time checking out the project’s fundamentals. Here are seven things to look for in an ICO or other ground-floor cryptocurrency opportunty.
1. Strong technical documentation: Start with the white paper. Every cryptocurrency or blockchain project should have one, and it should be easily found on their website or other project page. This foundational document should clearly outline the need for this particular token or blockchain, explain why other solutions aren’t a great fit, and nail down the specifics of how this project will solve the problem. It doesn’t have to be deeply technical, but it should at least make a strong case for the why the token — and the ICO that launches it — is necessary.
2. Great team with a proven track record: It’s one thing to have a great idea for a new blockchain or cryptocurrency, but it’s quite another to have the technical and business expertise to turn that idea into a reality. A great ICO development team will be packed with established innovators, academic researchers, experienced developers, and well-known business advisors. Every one of them will have a bio with details that be verified, and perhaps even contact information. Look for projects with individuals who are willing to put their reputations on the line for this ICO. If the project’s website offers few details about its launch team, that’s a very bad sign.
3. Excellent communication: The better the project, the more active and engaged its team tends to be. This doesn’t mean constantly hyping the ICO on Twitter. It means actively engaging with the cryptocurrency community, answering questions, discussing tricky coding problems on technical forums, and responding to emails. You’re looking for real posts and responses from people who genuinely seem to know what they’re talking about. The more credible and serious their responses are, the less risky the ICO becomes.
4. Auditable code: The vast majority of successful cryptocurrency projects are open source, allowing anyone with basic coding knowledge to examine what’s happening under the hood. If the code is sloppy, conspicuously incomplete, demonstrably broken, or uses insecure practices, that’s a good sign that the team behind the project isn’t as competent as they may seem. If the code isn’t available at all, the devs should have a very good reason for it.
5. Genuine community support: The best ICOs often come from existing cryptocurrency or blockchain development communities. Long before the first line of code is written, these projects have had ongoing conversations within those communities, asking about needed features, infrastructure ideas, mining support, token trading options, and countless other technical details. If the ICO appears to have come from nowhere, and without existing community support, it could be a sign that there’s not much actual demand for it.
6. Clear launch strategy: How many tokens will the cryptocurrency release in total? How many of those will be available through the ICO? How long will the token sale last? How much money does the team hope to raise? How will that money be spent? Will the dev team be paid in pre-ICO tokens? Will they be able to sell those tokens during the ICO? These are all questions the cryptocurrency or blockchain project should answer publicly before they take a dime of investor money during an ICO.
7. Verifiable legal and regulatory compliance: Across the globe, ICOs are becoming increasingly scrutinized by lawmakers and financial regulators, with many seemingly solid projects being shut down after launch. As an investor, you want to make sure that your money doesn’t get frozen for years simply because the ICO was handled improperly. Has the ICO gone through their country’s ICO vetting process? Have they talked to regulators? Has their business paperwork been filed and approved? Do they have all appropriate licenses? If the project can’t answer these questions prior to the ICO, consider investing your money elsewhere.