Due diligence before investing in an ICO

These days a lot of Initial Coin Offerings (ICO) are taking place and media capturing the big success stories on a daily basis. Many of us want to invest in ICO and make some money. But we need to wary of the fact that not all ICOs are going to be successful and there would be very few as successful as bitcoin or ether.

Look at the below points for doing your due diligence before you decide to invest in any ICO or cryptocurrency.

Understand the objective of the coin, what does it want to achieve!

Read the White-paper: go through the technical white paper carefully and pay attention to the followings –

What Problem does it solve: Does the coin and the idea behind it, are trying to solve a real-world problem. Is this problem important enough for a large group of people who would be interested in using the application running the proposed coin?

If the answer is yes, read further…

Solutions: Read the coin’s white paper diligently and try to understand the solution that it offers to the above-identified problem. Try to understand what all solutions are available currently and why this particular solution is better than the other existing solutions?

If you find this solution better to other solutions, read further…

Size of the market: Try to gauge if there will be enough interest in people for this solution. This will provide you an idea of the market potential of the solution.

If you think the market potential is large enough, read further…

The Team: Look at the profile of the team members behind the ICO and try to understand what all they bring to the table to make this solution work and be successful. What are their credentials, have they done successful ventures in the past?

Business model: How would the token be used in their final application? Will the proposed use increase the demand for the token over time? Also look at, how much money the team plans to raise and how do they plan to use it.

Milestones and Timelines: What are the project milestones and timelines for them? Do these timelines seem achievable?

Project Status: Is the application live and can be used? Are the codes available on Github and can be checked and tested? Is there a communication channel to talk to the team members, in case of any query?

Community Opinion: Visit ICO and Cryptocurrency forums to see general opinion of the crypto community. If there are negative sentiments, try to go deep and understand the reasons behind. Judge them on your logic and take a call.

Coin Characteristics: things that one need to closely look at –

Total number of coins: Are the total number of coins fixed, means does it have scarce characteristics? Scarce coins may increase in value with the increase in demand over time.

Mining: Are all coins released at the time of ICO or are they released over time? If released over time, is there mining process and business logic behind the whole process or are the founders have kept the rights with them to release new coins, and does it give undue advantages to them?

Distribution of coins: How many coins are assigned to founders and development teams and how many coins are released during ICO? What percentage of total coins is kept aside to be released in future?

These days, new ICOs are being launched every day. 99% of them are bound to fail, therefore before investing in a cryptocurrency or an ICO, do proper diligence before investing any money.

 

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