Risks and Challenges of ICOs – A guide for investors in 2018
ICOs (initial coin offerings) are a FinTech innovation that is revolutionising the way start-ups are being funded. 2017 saw startups raise more than $1.7 billion in funding through hundreds of ICOs. Although ICO investments can bring high returns, it can also be a risky game. We’ve compiled a list of ICO red-flags to look out for, to make sure you steer clear from investing in scams or bad ICOs.
ICOs will often make bold claims and statements about their product, despite it being nothing new or disruptive. If a company claims their cryptocurrency will be bigger than Bitcoin, have disproportionate amount of users, or double their value in a short period of time, you can add it to your list of scam ICOs. If a company believes their ICO has potential, they will let you know, but professional developers will never guarantee a price prediction for their token.
Credibility of Team
Researching the team behind an ICO is a good way to check its credibility. If the team consists of well-known members in the cryptocurrency community who have been involved in previous projects, it may be a viable opportunity. Warning signs should appear if the ICO has not named any full-time developers or if none of the leadership team has any domain knowledge in the specific vertical. ICOs will most likely list their advisors on their websites. Our tip to verify whether the advisors are legitimate would be to research their platforms, such as their Twitter and LinkedIn.
Insufficient Website or Whitepaper
Although it is plausible that the lack information and a poorly designed website for a ICO is due to the early stages of a project, it can be hard to determine whether the company is underdeveloped or a scam. In this case, we suggest to either wait until more information is provided, or simply avoid ICOs that you do not fully understand.
The whitepaper outlining the crucial details behind the project is pivotal to the ICOs credibility. Whitepapers explain how platforms work, with the inclusion of charts, calculations, and specification. When the whitepaper has no clear meaning or there is no actual tech discussed, it could possibly be a scam.
If an ICO project is proposing open-source code, an empty or nonexistent GitHub or Sourceforge is often a red flag. If there’s no link to the code at all, or if the project is nothing more than a copy with a few lines of changed code. If you have some blockchain programming experience, looking through the published code can allow you to gauge a project’s validity.
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