In 2017, the blockchain-cryptocurrency start-ups have raised US $ 5.6 billion via Initial Coin Offerings (ICOs). The crypto market capitalization is now over US $ 300 billion, and start-up project teams are frequently launching new ICOs. However, ICO is still a new concept, and it’s outside of the regulatory framework. The investors eager to participate in these often wonder how to participate in ICO.
An investor should analyze the ICO before investing in it. This article is a comprehensive guide for analyzing an ICO and the actual investment process.
Find out about the ICO team members:
The first step in analyzing an ICO is to find out about the ICO team members. The website of the project should provide enough information about the project team. A project with none or limited information on the team is a cause for doubt and an investor should be careful.
The project team should have an impressive track record of developing and marketing a blockchain-crypto project and expanding it. The team should also have good experience in the target industry. The investor should also inquire about the advisors. Finally, if a project has any venture capital (VC) fund backing, then that’s a good news.
ICO whitepaper analysis to learn about the project:
If the investor doesn’t see any meaningful product or service during in the whitepaper, the project could be a shadowy one. In the unregulated crypto market and ICO landscape, there are many ICOs for Ponzi schemes. If the ICO whitepaper promises a steady fixed profit or rate of return then it’s perhaps a Ponzi scheme, relying on new investors to join in, to generate high yield for the old investors. Cloud mining services, Bitcoin investment Packages, and multi-level marketing schemes are some of the known Ponzi schemes, however, there are others.
If the project has a real product or service to offer, to a real market, addressing a genuine business problem or market opportunity, then it’s worth investing. The whitepaper shouldn’t have only marketing and technical jargons. It should clearly describe the products and services delineating the market it will serve. The larger the market is, the higher is the chance of project success.
“What are the chances of the project being a successful ICO?”
A good project plan doesn’t guarantee success and an investor should analyze the likelihood of successful project execution. A project with a functioning product, even if Alpha or Beta version, has higher chances of success than a project with only a whitepaper. The blockchain technology is new and many innovations around it aren’t tested sufficiently. An ICO whitepaper may list an impressive array of technology innovations, but it’s doubtful if those can be implemented successfully.
A project team that has their open-source code available for everyone to review is a better investment bet than the one with no code or a closed-source code.
“Is the project team prepared to meet the ICO regulatory requirements?”
Although outside the regulatory framework now, with a market cap of over US $ 300 billion the crypto space will surely attract regulations. The investor should review the legal preparedness of the project team, i.e. whether they have accounted for current and likely future regulations of the jurisdiction they will operate in.
Regulatory requirements of the country and the industry the project will serve may also have know-your-customer (KYC) and anti-money-laundering (AML) requirements. The investor should check how the legal team of the ICO project plans to address these.
Analyze the need for an ICO token:
A project may be using blockchain, however, it may not need a crypto token. It’s possible to complete the project and build the product without a token. An investor should understand the business proposition and analyze why the project team plans for tokenization.
ICOs are hot now, and the temptation to raise big money by selling crypto tokens in an unregulated market is big for many start-ups, especially knowing that such token sale in no way amounts to offering a stake in the company, An investor should shun projects without the legitimate need for tokenization.
Open cryptocurrency account, get Bitcoin or Ether:
Once the investor has analyzed several ICOs and has opted to invest in one, he needs to get Bitcoin or Ether. Because ICOs typically don’t accept fiat currencies and take only prominent cryptocurrencies. The investor needs to open a cryptocurrency account with a crypto exchange and transfer fiat currency from his account to get Bitcoin or Ether in his crypto exchange account.
Set up cryptocurrency wallet:
The investor can’t use his crypto exchange account wallet for investing in ICO, because the project team will then send the tokens to that address, which really belongs to the exchange. The user needs to set up his own cryptocurrency wallet, and it’s preferable to set up both software wallet and a hardware one, because leaving coins in a web or mobile wallet for long isn’t safe, and hackers can’t touch his coins when those are in the hardware wallet.
Most of the ICOs are launched using Ethereum platform and ERC20 token standards, and all of them accept Ether. MyEtherWallet as the software wallet and Ledger Nano S as the hardware wallet is a good combination to start with.
Buy ICO tokens:
A good ICO project provides clear information on their website about the ICO timeline and how to buy ICO tokens. The investor should read the instructions carefully. He should subscribe to the social media, online forums and messaging app like Telegram to get regular updates about the project.
The investor needs to transfer his cryptocurrencies into the address specified by the ICO project team in their website. There are possibilities of hackers manipulating the address on the website to route the investors’ cryptocurrencies into their account. The investor should follow the news about the ICO in social media or Telegram to remain up-to-date about such attacks. After receiving the tokens he should transfer them from the web wallet to the hardware one, for safety. The investor should budget for the fees to the miners, who try to execute the transactions quickly. Hence the investor should keep some additional Ethers for this purpose.
Other ICO resources:
We recommend the investor to understand the concept of an ICO thoroughly, including the pros and cons, before participating in one. The investor should also visit ICO Bench and ICO watchlist websites, for an in-depth review of ICOs.
Hope you find “How to participate in ICO” guide useful!
*Disclaimer: The article should not be taken as, and is not intended to provide any investment advice. Claims made in this article do not constitute investment advice and should not be taken as such. Do your own research and make sure you read our full Disclaimer.