Initial Coin Offerings (ICOs) happen to be the latest craze amongst investors in the cryptocurrency space. A brainchild of the Ethereum team, it is a form of crowd funding, that allows fledgling projects to raise capital for development of decentralized projects (primarily).
ICOs also provide digital tokens or assets to project backers, with the investors hoping that the token will be worth more than the price they purchased it for.
However, there are certain factors you should lookout for, while doing your diligence in selecting the best ICO to invest your money in:
Going for “X” factor projects
While investing in an ICO, it is important to identify the core features of a project that differentiate it from the unscrupulous bunch of copycats.
For instance, consider Ethereum(ETH). It was a project which promised to create more interesting applications with blockchain rather than just transferring of funds. It’s no surprise that the project developers, Vitalik Buterin and team, were able to conduct the largest ICO till date.
You should look to avoid investing in an ICO which is a tad too similar to an established project. These ICOs often ride on the hype of other successful projects. For example, there were many ICOs that wanted to replicate the success of ETH with a focus on ‘smart contracts’.
Without an innovative or novel use case, these projects end up getting significantly less attention than their predecessors.
Bonus for investors
Another thing to look for when evaluating an ICO is whether or not the development team is offering a bonus incentive for early bird investors. This can vary widely from project to project.
For example, an ICO may offer a 10% bonus in token distribution for the first batch of investors before a 1000ETH milestone is reached. This means that, if 1 ETH gets the investor 10000 coins, instead they would receive 11000 coins.
Conversely, if you are investing towards the end of an ICO in which a bonus was offered, you must understand that there are those who will theoretically have a more optimal level of control of the total coin supply.
Escrow, and Refunds
Another mandatory aspect worth looking into, when considering an ICO investment, is identifying the escrow services handler for the crowdfunding.
Genuine development teams normally will enlist individuals with a solid reputation within the cryptocurrency community to act as faithful holders of the raised funds. With their reputation on the line, these individuals are less likely to run away with the collected funds.
Also, in case of non-achievement of funding for the project, there should be a condition in place to refund the contributed money back to the respective investors. This acts as a fail safe in a case where a project ends up under funded.
Credible developer or not?
Credibility of developers is determined by whether the team is public or anonymous. When a development team is public, there are known faces in the organization, and a specific individual that could be held accountable in a scenario concerning possible squandering or robbing of funds.+
Of course, there are ICOs that are held by anonymous developers, with some of them having a credible background, and some who are new to the scene. As a prudent ICO investor, you should not invest in ICOs of anonymous developers with zero recognition within the community.
Lastly, there are no guarantees that your investment will turn out as per your expectations. Do your best to evaluate risks of any contribution you make, and don’t go for more than you can afford to lose.