How to Evaluate an ICO

Initial Coin Offerings or ICOs are a popular, and somewhat new way of raising finances for an up and coming business. Most ICOs start by only being sold on their respective website but eventually end up on exchanges. They often do not have any working product other than the coin itself, making it frustrating to decide whether they are worth your money. Some ICOs are even so new that there are no pricing charts or trading history for them, making the evaluation process a nightmare.

The Unique Selling Point (AKA What Does the ICO Do?)

Perhaps the most critical aspect of an ICO is what it intends to do. What makes this ICO unique in comparison to all the other coins already on the market? What problem does it solve?  The best way of finding this out is by going to the ICOs’ websites. This is a simple way of finding out how the developers would describe their own product. Of course, take their word with a pinch of salt as, naturally, they will always shine a positive light on their coins.

After finding out what unique thing an ICO intends to do, you then need to assess that claim critically. You need to ask yourself ‘Do I think this ICO can solve that problem?’ and ‘Do I think this is a problem which needs to be solved.’ We are in a situation right now when it is stylish for new companies to build a token for their existing product as a means of making extra cash, but most of these companies don’t, in fact, need tokens or coins to run their project. Many do this merely to give the illusion of quality.

Read the Whitepaper

Check out the whitepaper for the ICO. It should give details on how they intend to solve their problem, both from a strategic viewpoint to a programming/technological viewpoint. The whitepaper should be where the creators are the most articulate about their ICO. It can sometimes be hard to know what a high-quality whitepaper should look like, so here are some examples: the Oyster Pearl, 0x Project, and Golem whitepapers are all considered well written with a sufficient amount of technical explanations. This is not to say that these three tokens are worth investing in, just that they have exemplary whitepapers.

If the whitepaper does not have many pages to it, or the whitepaper does not even exist, then it is worth disregarding the ICO altogether and avoiding investment. A detailed whitepaper is a necessity in the cryptocurrency industry.

With that said, do not worry too much if there are a handful of spelling or grammatical errors in some whitepapers. More often than not, it is because the whitepaper was initially written in another language and the developers hired a translator who has little computing knowledge.

Search the Team

Every worthwhile ICO will have a ‘Team’ page on their website (sometimes called ‘About Us’). Be sure to check it out and make a note of the top members such as CEOs, COOs, engineers, lead programmers, and financial specialists. These are the most important people involved in the ICO, research them and look out for any red flags that you might find. Examples of red flags include:

  • Having little/no experience in the cryptocurrency field
  • Having a history of fraudulent behavior
  • Being known to use offensive/inflammatory language in the past
  • Nothing can be found about them at all

If they list any advisors, you should check those out too. You can usually find them on the ‘Team’ page. They are much less important than the team but ignoring them would be negligible. It’s hard to say how important they are to the success of an ICO because the term ‘advisor’ is often abused in the industry. For instance, many ICOs will list somebody as an advisor even if they only spoke to them once or twice!

There is no quick way of figuring out which advisors are genuine and which are not; your best option is to put the name of the advisor and the ICO in Google with quotation marks. For example, say you were looking through Enigma’s advisors. You might search: “Jason Gibson” “Enigma” into the same Google search (Jason Gibson is listed as an advisor). This will only reveal results where both terms appear on the same page. If you do this with an advisor’s name and the only result is the ‘Team’ page of the ICO, then there is a chance that the ICO is acting fraudulently.

Go to BitcoinTalk

It is the tradition for a company to announce their new ICO on the famous BitcoinTalk forum. If the ICO has a BitcoinTalk thread, it is a great idea to check it out because it is a vast Q&A where esteemed members of the crypto community ask questions to the developers. These threads offer a plethora of useful information and an excellent source of research. Here is the Waltonchain thread to take a look at as an example. Some questions will be technical, but many will be free of jargon too. All BitcoinTalk announcements can be found on the ICO’s CoinMarketCap page, or sometimes the ICO homepage.

Avoiding Ponzi Schemes

There are a disturbing number of ICOs which fall under the category of being a Ponzi scheme. Some of them even look incredibly legitimate with impressive websites, clean whitepapers, and a few promotional videos. One thing all Ponzi schemes have in common is that they heavily suggest that by investing, you will gain a huge return. Most of them even ‘guaranteea large profit. They tend to say that they use your money to run a ‘lending platform’ or ‘trading bot’ which makes small-scale day-trades every day and that you will get a fraction of the profits from doing so. Of course, this is not the case; instead, any profits you get would come from the other investor’s money, as is with every Ponzi scheme.

The best way to spot a Ponzi scheme is if they do any of the following:

  • Call themselves a ‘lending platform.’
  • Use terms like ‘guarantee’ or ‘promise’ when talking about profits.
  • Do not explain what their coin does.
  • Do not have a listed team (Ponzi schemes are illegal in most Western countries.)
  • They state that the best way to make money is to ‘stake’ their coin (such as how DavorCoin advertised itself.)

Not too long ago somebody on Reddit posted an incomplete list of popular Ponzi schemes at the moment. It is worth looking through this and maybe even visiting a couple of these fraudulent coins and ICOs so that you get the hang of what they look like.

Never be the bagholder.

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Kai is a cryptocurrency copywriter and professional trader. He can often be found investigating various cryptocurrencies, whitepapers, and blockchain technologies. Kai has been a professional writer for 5+ years, and has invested in 50+ different coins and tokens. He also currently studies Law and Philosophy at university.