The year 2017 is a vital point in the growth of Cryptocurrency market. Millions of people were attracted to Bitcoins and other Altcoins as a promising investment opportunity. Increased media coverage, high returns and booming crypto market have attracted many investors from different tiers to invest in various Cryptocurrencies and Initial Coin Offerings (ICOs). More than 2 Billion dollars has been raised by different cryptocurrency ICOs in the past six months. If you’re interested in investing in ICOs, you might be both curious and confused looking at all these numbers. So, how do you trust these ICOs? How can you trust that your investment will reap good returns? Well, to answer these questions, we should know the mother of all these questions: How do you evaluate an ICO?
Before we start with the strategies and methods to evaluate an ICO, let’s see what is an Initial Coin Offering.
What is an ICO?
Well, let me get to this simple and straight-forward. Let’s imagine that you have a great idea for a new cryptocurrency technology which offers great features and has huge potential in the market. The first thing you want to do is to build a team, develop the actual currency and own the rights to it. So, you have a lot of work to do to achieve your goal and it involves money. You could go to the bank or some potential investors for money in exchange for a piece of your company. It means you’ll lose a part of your ownership of your own company in return for money to start it. Here comes the concept of ICO where you can keep the complete ownership to yourself but still get the capital investment for starting the business.
Through ICO, you’ll ask people for investment in return you offer them some of your coins/tokens. Since your coin doesn’t exist in circulation yet, you offer them a detailed documentation of the details on how your coin exactly works. This is called a White Paper. If your documentation is promising enough, people will send you real money in the form of Bitcoin, Ethereum or any other fiat currencies in return for your cryptocurrency hoping its value will be booming in future.
In quite simple terms, people will be paying you money to start your business in return for a worthless currency/tokens that is yet to enter the market. Well, it looks like quite a gamble but this is business and the coin might get massive returns if the startup succeeds. Now comes our main question: How to evaluate an ICO?
How to Evaluate an ICO?
Now that you know that the fundamental working on the Initial Coin Offerings, let’s see how to evaluate them.
Check their Website & the White Paper
The first thing you need to do is to visit their website and check all the details. Read the white paper carefully and see if their technology has the potential to succeed. One of the best metric to examine at this phase is to compare their currency with the existing currencies. Make sure the ICO is offering improved features and streamlined transactions in their model. If you don’t find any practical applications to their model, it’s a great risk to invest in such cryptocurrency ICOs.
Examine the Team
Once you’re convinced that their startup could work, you should make sure that the people who run it have the potential to make the business a success. Look for the developers and their track record in delivering the projects, their ability to cope up with the market trends. Also, you need to make sure the history of the founder is clean without any infamy. A good leader with an impeccable business record gives a lot of hope for the startup to succeed and to gain public’s confidence.
Finally, you need to check the business advisors and investors of the company. If the advisors have a good reputation of strategically point the business to success, it’s a plus. You can also consider the metric of strategically built partnerships that can boost the company’s progress. It gives a signal that the company is serious about building a community with trustworthy sources.
Estimate the Business Potential
The next step should be to evaluate the business potential. You can ask yourself the below questions to help you come to a conclusion.
- Does the company provide an innovative service with improvements and advantages over existing solutions?
- What is the estimated time for the coin to be launched and when can you expect returns on your investment?
- Do they have a good social media presence, referral programs?
- Does the company showcase any working prototype of their service?
- Have any of the major investors expressed their interest in the ICO publicly?
- What’s the immediate competition to the startup? If any, make sure the startup has a definitive edge over the competition.
Social Media & Crypto Communities
Although I don’t trust much from the social media, I believe analyzing from a different point of views can be helpful. Once you finished your analysis, check out the opinions of other people. However, don’t get caught in an infinite loop of indecision here. Many people get confused with the mixed opinions from social media but if used correctly, you can use the information to make your own analysis.
It’s always a thumb rule to go with the ICOs which can provide a promising white paper, a working prototype/proof-of-concept. If the ICO doesn’t provide any of them, don’t invest.