Guide: How to safely invest in an ICO
To draw the most benefits from an ICO, investors participate in token sales in order to initially acquired them at a lower price for a future resale on an exchange with profit. The issue lays in the fact that each month, practically hundreds of new ICOs appear, and it’s quite difficult to choose a startup that will be successful, especially during the initial stages. It’s crucial to consider that about 90% of ICO projects will end up as losses for investors, and about one out of ten startups will bring about high returns. In this article, we will provide recommendations on how to safely invest in an ICO.
The cryptoindustry is experiencing an explosive growth in ICO popularity. Some of them show profits in the thousand, ten thousand, and even one hundred thousand percent range. The fantastic returns on investments in certain startups lead more people towards searching for investment opportunities, and ultimately, the market becomes overheated. The current crypto asset situation resembles the gold rush.
Example: After its ICO, Stratis shot up in price by 150 000%, Spectrocoin showed gains of 18 000%, and Storj grew by 12 000%.
Just in the first 6 months of 2017, the number of investments in ICOs grew by 600%, in comparison to the whole 2016. The ability to increase one’s capital in a short amount of time attracts a lot of beginner investors, who don’t have enough experience in order to carry out a full investigation on a startup in the Blockchain environment. So the hype creates a foundation for the following:
- The massive demand for ICO startups attracts a lot of scammers which create fake projects in order to make a profit off of investors and then disappear.
- Easy access to investments attracts weak and irresponsible developer teams, which are incapable of successfully realizing a startup.
- Scammers and low-quality projects attract a significant amount of investments which could have been used for actual worthy ICOs.
- Investors lose their money, which in turn affects not only the reputation of ICO projects but the entire Blockchain ecosystem, stumping the growth of the cryptoindustry.
- The actions of scammers attract unnecessary attention from government regulators. ICO projects have already been banned in China and South Korea. Japan are regularly raising the same question.
Investors need protection, analytical and professional services like Safinus which check perspective ICOs for secure investments are appearing. If you are investing independently, the best way to protect yourself is to check everything that you possibly can, carefully picking investment candidates. This is your money, and the earnings you gain or lose depends on how you research a project. We have provided 12 parameters to go by when checking an ICO, with examples of investors that have already suffered due to not devoting enough attention towards evaluating a project:
Study the project team
It’s essential to evaluate the project team. Are they hiding their real names? Can you find their profiles on social media? Do they have technical experience? Are they strong in marketing and do they have experience in large projects? Consider if they can not only attract investments but build a change resistant business.
For example, the team behind Opair was planning to create a decentralized debit card, however, they were anonymous, and even their Linkedin accounts ended up being fake. After they raised 1 000 000$, they disappeared, only to create another scam ICO, Ebitz, which was later unmasked.
Check website addresses, email addresses, and social media accounts
Before investing in an ICO, double check that you are on the official site. Scammers can copy a legitimate ICO website and steal funds. They not only copy and crack websites but social media accounts and email addresses as well. Don’t trust private messages on Slack, because it’s one of the most favorited platforms by scammers.
If you see a weird message or receive an email related to an ICO that you want to invest in, double check the address and news. If suspicions arise, contact the team directly.
During the Aragon ICO, hackers made a fake twitter account and stole 10 000$
During the MyEtherWallet ICO, intruders made a copy of the ICO’s website with a similar name and got 750 000$
The Coindash project got hacked and switched out Ethereum addresses, resulting in theft of 7 000 000$
Evildoers changed out the Enigma projects wallet address, gained access to the Slack-channel newsletter, and then sent out requests to participate in a fake – ICO, stealing 500 000$
Check the project’s website design
Scammers don’t really put a lot of effort and generally try to save money on designers and developers. If a project’s website doesn’t look presentable, consider that an extra reason to contemplate as to whether or not you should invest. Projects with high success rates always spend a lot on their design.
A great example is Tithecoin, their website is still live on a free hosting service, and the design is so awful that it’s difficult to even read the text on the page.
Assess the realization of the project
It’s quite common for dishonest ICO creators to announce goals which look beautiful and romantic, but they are impossible to realize in practice. Think about the real world applications of the project. Is there a stable demand for the ICO’s product? Is it even possible to accomplish what the developers are planning to do?
An example of a bad ICO project – Razormind, the project creators claimed that they would create a new operating system based on the Blockchain, they gathered $10 000 000 but didn’t even start developing.
Another infeasible startup – SkyWay, they wanted to create an aboveground transportation system, which would reach speeds of up to 500km/h, and the tickets would cost 7 less than the price their competitors were charging. The idea is absurd, even for global industry giants.
Carefully read the Whitepaper
Read the entire whitepaper. There absolutely must be a project roadmap, information about what gathered funds would be used for, how tokens will be used, and information about the team and project advisors. Make sure that you are satisfied with everything. If something isn’t clear, clarify it with the developers. As a rule, scammers either don’t answer questions at all or answer rarely and in a vague manner.
The startup should not be limited by a narrow niche or one region
If a project is tied to some specific region, then it starts to depend on the actions of government regulators. Additionally, if the project is targeting a very narrow niche, then the disappearance of that niche will lead to the project’s failure.
A project must target a global audience and strive towards decentralization. A great practice is to invest in ICO startups which add something to the development of the Blockchain ecosystem. Because your Investments will grow in synch with the crypto industry.
Example of a successful startup – the Ethereum platform itself, which actually implemented smart-contracts which granted the possibility to make ICOs as open and free as they are now.
Example of a startup in a risky niche – SkinCoin, they wanted to create a betting and trading platform for video game items. They have a strong team, but the ICO directly depends on the decisions made by video game developers. If Valve or Steam forbid the use of trading or exchanging, and the use of in game items for gambling purposes, then the project may receive some serious damage, and investors might lose their assets.
Be cautious towards projects from a real sector of the economy
Currently, it’s ill-advised to invest through ICOs to the construction of factories, automobiles, raw materials, farming, and etc. As a rule of thumb, these projects have serious competition with huge budgets – and the chance of success for these ICOs is insignificantly small. Additionally, there is no sufficient legal basis for the interaction between crypto economies and real sector in existence.
You shouldn’t invest in crypto assets that are tied to real estate, gold, and other physical assets. Even in the case of fortunate circumstances, expected earnings from these investments are too low to justify the risks.
In the USA, one of the first cases of fraud involving an ICO occurred when two companies, Diamond Reserve Club World and REcoin Group Foundation, acquired funds to work with diamonds and real estate. Developers didn’t even begin fulfilling their obligations, and no work was done at all.
Learn from those who have already invested in an ICO
Search for information pertaining to large crypto funds investing in startups that interest you. If large investors trusted an ICO with their resources, that means that their analysts already carried out some full-blown research and came to the conclusion that the project in question has some promise, and that the team can be trusted.
What do people write about the project online?
Read reviews and discussions on popular forums and media outlets like Bitcointalk and Reddit. On large forums, developers frequently participate in discussions, and a lot of questions that investors may have, are commonly discussed.
Evaluate if the tokens are promising
As an investor, it’s favorable to you if the token price continually increases, it’s essential to understand what kind of value tokens will have after an ICO. Figure out how the tokens will be used in the project, will there really be in demand? Are there reasons for as to why the demand for the projects tokens should grow?
Check if whether or not there will be more tokens released post-ICO. If yes then the developers need to substantiate as to why they plan on issuing more tokens in the future, and how they will protect the tokens from inflation.
Seek out the assistance of professionals
Professional advisors and analysts do offer services. They independently research the ICO for reliability and provide you with protection from the majority of scammers. Additionally, crypto funds and traders, that can carry out investments in the interests of their clients exist.
The only drawback here is that you might have to check their competency, and the services of professional advisers and cryptofunds are only accessible by large investors.
Use platforms for safe investments
We offer our project Safinus, which is getting ready to enter its pre-ICO, with the idea of ensuring secure investments in ICOs and cryptocurrencies.
We are creating a system where experienced investors, traders, and cryptofunds will create investment portfolios, the profitability of these portfolios will be verified through the Blockchain.
Beginner investors will be able to chose a suitably profitable portfolio from the rating system and invest in it with just $100. No research or even an understanding of the cryptoindustry is needed to do so.
ICOs will be added to the exchange only after receiving an approval from the community of professionals via a vote, which will provide insurance and protection from dishonest market participants.
The crypto market is young and not yet regulated, thus, the investors of today need to be extra cautious in order to stay safe from high risks. However, the cryptoindustry is growing, and the market is developing alongside with it, new services and tools for regulating the market and protecting it from scammers are appearing.
The Blockchain ecosystem will gradually create an immune system against dishonest community participants. Not only the market will strengthen, but the flow of ICO investments will go towards actually useful cryptoindustry projects, and investors will be able to earn more with greater security.
The article was written by Julia Luckman, the CMO of Safinus
Hitesh Malviya is the Founder of ItsBlockchain. He is one of the most early adopters of blockchain & cryptocurrency enthusiast in India. After being into space for a few years, he started IBC in 2016 to help other early adopters learn about the technology.
Before IBC, Hitesh has founded 4 companies in the cyber security & IT space.