Initial Coin Offerings (ICOs) have become a popular investment option since bitcoin exploded onto the scene in 2017.
As a high risk investment, you can potentially make a lot of money by investing in an ICO, but you also stand to lose just as much.
In this guide, I’ll cover how you can invest in ICOs and the steps to take to protect your investment moving forward
Read the platform’s whitepaper
Every ICO should have a published whitepaper that outlines what the platform does, how it works and why it uses a blockchain. The document should argue a strong use case for the technology and its profit potential for investors.
As one of the most important documents an ICO should have, the contents should be professionally presented and be easy to read. After its consumption, you should be able to summarize its features in a few sentences or less.
Analyze the token distribution and total supply
The whitepaper should have a section that’s dedicated to how the tokens will be distributed. As a rule of thumb, at least 70% of the tokens sold should go to investors while the rest should be set aside for the platform’s team members and future reinvestment.
A typical ICO should reserve 10% or less to the actual founders. If the distribution is higher than this amount then it is a warning sign.
The total number of tokens that will be minted into circulation is another discussion point. Generally, the higher the token count is the less valuable the tokens will be due to the forces of supply and demand.
How the tokens will be released to be public is also something to keep in mind. Some projects will control the token’s supply by slowly drip feeding tokens into circulation while others will release all of them once the ICO has ended.
Study the founders’ credentials
When studying the ICO as a potential investment the founder’s credentials are important. Look for people who have a strong track record in delivering projects.
Most ICOs will list the founders and a brief summary of the work they’ve done in the past. It will pay to double check that these credentials are true by verifying them through Linkedin, Facebook or by searching for their history online.
Many frauds in the industry have been uncovered by a quick Google search.
Identify the problems solved
A strong use case should be identified by the founders that only the blockchain can solve. The problem must also be big enough to warrant an ICO with a large enough payoff.
The problems solved must be carefully thought out and logically presented in an easy to follow format. If the problem is not easily identified, the project could lack focus or direction.
Investigate the stage of project
By reading through the ICO’s press kit you should be able to determine what stage the project is in and its roadmap moving forward.
The earlier a project is in its development cycle the riskier it is from an investment point of view. On the other hand, a platform that has a working model with customers already is far more feasible.
Check Venture Capital Investments
The best projects will generally be supported by other forms of capital than just the ICO. It’s not uncommon to see numerous venture capital companies invest in a single project.
If the project has VC funding it should be apparent in its whitepaper and website. VCs may also be listed as advisors on the project’s Team page.
Follow the project on social media
The good news about investing in ICO projects is that they’re usually easy to find on social media. The team should be publishing lots of high quality content on their Twitter, Facebook and Linkedin profiles to entice and educate investors.
Another place to look is the project’s thread on bitcointalk, which is one of the largest and most active cryptocurrency communities online. There you’ll be able to interact with the founders directly and read the questions posted by other users.
Check the project’s Github repositories
If the project is indeed underway, there should be a flurry of activity in its github repositories. You can check how active the project is by looking at the number of commits, branches, and stars the repositories have.
An empty or otherwise lacking repository could be a warning sign that the project is brand new or that the operators don’t want the public seeing the work completed so far.