How not to shoot yourself in the foot when choosing ICO
One needs to understand that investing in ICO is a highly risky enterprise, since there are no guarantees at all. Moreover due to the hype, market has attracted scammers, who close down the project after collecting fiat money for their tokens. To sue these conmen is impossible, since the ICO legislation in many countries is in its early development and the chances of proving the fact of fraud, as well as getting your money back, are close to zero.
Investments in ICO is a serious step, investors are required to have experience and certain knowledge. Therefore, in this case it is better to recruit a specialist. However, if you do not want to entrust your own funds to another person you can choose a project yourself, seriously study it and pay a special attention to the following points.
- First of all experts advise to examine the project's team. Experienced developers, as a rule, are fairly well known for their past projects. It is recommended to study their bio on the forum BitcoinTalk.
- It is necessary to assess the value of the project. The project must solve a certain task and have a final benefit for the consumer, and it must also be clearly and logically justified.
"We need to understand what the idea of the project is, whether it is related to blockchain technology, or blockchain is just far-fetched by the founders to raise money. What is the background of the proposed product, whether it has competitors, is there an independent examination,” notes Ilya Buturlin, Head of Digital Economics Programs, Financial University.
Experts note that most of the projects are now at the stage of the handmade concept, even the team does not always fully understand its product.
Total failure is highly likely among those projects that do not have any value behind them and which are used for speculation in popularity of blockchain.
- Hype claims should be a warning sign. "Bitcoin or Ethereum killers", guarantees of "200% profit per week" should be shunned.
- The project should have a financial model, which makes it clear how the company plans to earn money. The project must have real assets or a product that will constantly generate profits. If the team plans to earn money out of thin air, that is, due to the speculative component, then, according to experts, it is doomed.
"There must be a real need for funds, the team must understand that the funds raised during the ICO is a resource which can bring even greater benefits," says Dmitry Pigarev, CEO, Green Fund.
- In addition, it is worth paying attention to the Escrow wallet, as well as the code and the link to the repository. "Escrow wallet stores coins of the participants until the agreements are implemented. Holders of primary keys must be known among the community. Also, the project must have a link to the Github or Sourceforge repositories. If the code is copied or has minor edits, you can find it," advises the specialist of the development and innovation department of FxPro.
"Reasonable risk-taking means that you need to get as much information about the project as possible. First of all, you should carefully read and study the sale agreement, most often it contains important information and details, which organizers tend to conceal in description of the crowdsale and ICO on their website. Well-formed documentation is an essential part of a worthy project. The company's registration, escrow account and a working prototype, team's impeccable reputation are significant advantages," says Avetis Vartanov, Head of Training at QBF.
An additional advantage for the project is the presence of an escrow agent. Roughly speaking, a well-known person from the community, who acts as the guarantor of what is happening, must be found. The signature of Escrow is needed to transfer money collected through ICO. This is a perfect guarantee that the next day after the end of ICO, the team will not fade away. Of course, it can disappear, but won’t be able to steal your money.
So, the "red flags" of projects that try to attract financing through ICO are following:
- the names of its developers are unfamiliar;
- the project team has already used ICO to raise funds for projects that failed or one of the project participants was convicted of fraud;
- the project does not serve a useful purpose, there is no clear understanding of its monetization;
- project owners promise to "outperform" other competitors and bring huge profits tomorrow;
- description of ICO contains high-sounding words about the project's scale or universality, while there is no information about the code, there is no clear description of profit distribution model.
When thinking of investments in ICO, it is necessary to pay attention not only to specific projects, but also to the entire industry as a whole. Experts predict that the bubble formed around the technology will burst in the future.
"The bubble is likely to burst and not because the technology itself is so bad. Nowadays all this is growing not at the expense of the technology's own value, but due to hype and speculation, divorced from reality. In fact, even technologically many projects in the sphere of blockchain are empty shell. There is nothing behind them. They are urgently used by "entrepreneurs" to get them to the exchange to hit the jackpot in a few months," says Evgeny Sidorov, technology director at "Sibrus".
When choosing a project, you need to take a sober look at its prospects, not allowing yourself to be blinded by the promises to increase your investments by several times in a couple of days. And you need to remember the golden rule: "you can not keep all the eggs in one basket", so if you are an inexperienced investor, do not withdraw all your money from the bank account and invest it in ICO.
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