Top 5 Ways to Choose Initial Coin Offerings (ICOs) to Invest In

Thanks to Ethereum, it’s easier than ever for new startup businesses to raise investment capital. This is because anyone with a market worthy idea can create ETH based ERC-20 tokens to raise capital and start building out their venture.

What is an ICO?

In traditional business financing, new startups are required to raise capital by pitching business ideas directly to investors. Either this, or by securing a bank loan. However, not all businesses are able to secure funding. ICOs in this case, allow new startups to raise capital by selling digital currency tokens for fixed amounts of Bitcoin and Ethereum.

By raising ETH and Bitcoin funds via Initial Coin Offerings, startups which might struggle to raise capital via conventional means can do so relatively easily. This is because (in theory), investors who buy ERC-20 tokens will see tokens increase in value as startups use capital raised to bring products and services to market.

5 Key Things to Look for in Initial Coin Offerings

Because ICO coins can be procured inexpensively, ICOs are an easy way for low entry point investors to gain a foothold in the cryptocurrency market. The only problem is that ICOs are unregulated. As a result, many unscrupulous people create ERC-20 tokens without any real intention of using funds raised to start a real business.

Does an ICO Have a Whitepaper & Real Utility Value?

One example of an easily spotted fake ICO is/was August 2017’s Botcoin.

Designed to bring to market the world’s first Blockchain lottery, Botcoin based it’s token sale on nothing more than a clumsily put together sales pitch. The token had no whitepaper. (Meaning that investors weren't given any information regarding how Botcoin would work from a technical perspective). Much more tellingly, however, the idea of a lottery which would pay out Bitcoin after people enter using Botcoin, was a logical and technical impossibility.

Of course, many ICO scams do publish whitepapers and attempt to argue that tokens have real utility value. This is why investors should always look deeper than even the most catchy sales pitch.

Developers & Reputable Business Advisers

As a rule, legitimate businesses attempting to launch a successful ICO will make a lot of PR noise regarding who is contributing to their project and why.

Reputable projects like Cardano are quick to identify Ethereum’s own Charles Hoskinson as their projects CEO. Coins like CreamCoin, on the other hand, will rarely name developers or project advisors, simply because these people don’t really exist.

Never Take ICO Claims & Promises at Face Value

In 2017, two revolutionary altcoins arrived on the cryptocurrency market in the form of IOTA and Snovio.

The first of these coins (IOTA), was apparently a Microsoft backed coin designed specifically for future ‘Internet of Things.’ The second (Snovio), then claimed to have created a lead generation based blockchain, already being used by the likes of Ubisoft and Lego.

Sadly, while both IOTA and Snovio still benefit from strong investor support, both coins should be approached with extreme caution.

Despite big promises, IOTA not only isn’t backed by Microsoft but also has a completely unusable blockchain. In the case of Snovio, in the meantime, the existence of relationships with top Fortune 500 businesses is itself being called into question.

Learn How to Vet ICOs on Github & OpenStack

By far the easiest way to spot a fake ICO, is to visit coin development community pages on Github and OpenStack.

Any decentralized blockchain needs to have a publically viewable source code in order to verify its integrity. This being the case, coins not listed on Github or OpenStack, should be avoided at all costs.

Of course, coins like IOTA are listed on Github. If, however, one follows IOTA blockchain development comments and notes, they will see that IOTA has a serious issue with replay protection. This being the case, ICO investors should always look for evidence of consistent/ongoing Github development, positive peer reviews, and a simple to understand (non-jargon stuffed) project whitepaper.

Do ICO Whitepapers Outline Viable Business Ideas?

In 2017, several ICOs were launched with the intention of using coin sale funds to bring physical products like smart wearable tech to market. What is more, many such ICOs were genuine.

Sadly, even products and services which entrepreneurs are genuinely passionate about can fail when it comes to their viability on the mass market. This being the case, one of the most important things ICO investors need to ask themselves when investing, is whether or not they feel that an ICO has (and will continue to have) real market value.