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The Low-Down

A general blogs with topics of intrigue to consumers and the insurance community.

Tips to Pick the Right ICO

James Neff James Neff , 2/2/2018
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As of writing this, Bitcoin has fallen to under $8,000, wiping off half of its total value in less than a month. Other currencies, such as Ethereum and Ripple have also seen similar tumbles over the last month as the cryptocurrency market remains as volatile as ever.

Investing in establishing cryptocurrencies is risky enough, but ICOs come at the risk of outright fraud. Prodeum was just the latest example of ICO fraud, as the ICO took investors to tune of millions of dollars in initial funding while subsequently falling off of the face of the earth.

So why do so many people continue to fund ICOs. Well, some are looking for the next Bitcoin or Google to get rich off of, while others are simply serving as financial backers in an enterprise and product they truly believe in.

For pure speculators, ICOs give you the opportunity to invest in a token before the general public and at a much cheaper rate. It’s also not guaranteed that any token will actually get picked up by a cryptocurrency exchange.

When investing in an ICO it’s important to practice your due diligence. Fortunately, I’ve come up with this article to give you some advice on how to decide whether you should invest in an ICO or not.

It’s All About the Proof of Concept

First things first, never invest in an ICO that you’re unfamiliar with. The most successful tokens, Ethereum, Ripple, and Bitcoin, all have applicable proofs of concept that completely disrupted their respective industry. An ICO or token is always based on a specific proof of concept outlined in a whitepaper.

ICOs are issued to by organizations to help fund a product- to get it from beta stages to full rollout. Analyze the whitepaper or ask for a technical evaluation if you have a hard time understanding it. What utility does this blockchain based project provide? Is it disruptive to its industry? Does it face friction in its development? What processes is it improving upon to make more secure, efficient, or easy-to-use?

These are the questions you need to answer and go over to decide whether the idea itself is enough to fund. Yet, that’s merely the starting point. Many organizations have released ingenious proof of concepts only to walk away with millions and leave the face of the web.

What stage is the product in and is it currently in production? How sound is the code? How stable is the network or platform it will be operating on? What scalability issues does it face when meeting demand?

Again, it’s not merely enough to invest in an idea, you should be able to see a product being employed in front of you. Test it out and see how it resonates with a selected audience. Having a product being actively developed will eliminate barriers toward commercial release. At least you know it’s functional at the very least.

Of course, you may not have the expertise to full flesh out these considerations, which is why we look to other factors to determine our decision.

Understand Whose Backing

It’s important to research the backers behind a new ICO project. This will give you social proof to a project’s efficacy and ethicacy. Consider a new ICO like Giftcoin, and ‘Team’ page.

This ICO was built for charitable gifts and is backed by industry leaders with years of experience in web development and charity advisory.

Look at the team at Cyphereum, listed by Inc. as the top ICO to look out for in 2018.

Their team is composed of former computer and software engineers at Google, Amazon, and Microsoft.

A team with little expertise should alert you to a potential red flag. Investing in an ICO really depends on your trust. Google team members and do your research to see what other projects they’ve been involved in.

If a VC or other well-known investor has skin in the game then even better. This not only shows an ICO’s legitimacy, but it also boosts its chances of achieving commercial success.

Search for Media Coverage

Obviously, you can find a number of ICOs by searching for the best ones and starting your research from there. If you are tipped off to a potential ICO, I suggest researching it to see what other people are discussing about the ICO.

Check out this discussion of Cyphereum over Bitcointalk.

Cyphereum is mentioned everywhere from Inc. to Forbes.

Reddit is also a great forum to read through different user reactions to ICOs. At this point, you should probably research the best ICO forums out there. Fortunately, Coinbase has provided a great resource to find all you need about a particular ICO.

Analyze Supply and Demand

Coins like Cyphereum claim to change everyday life and Bitcoin to change currency in general. But how much demand is there for these services? During your initial usability test you should have gotten a feel for how well people will adopt this technology and how much they’ll use it.

Obviously, every new technology is bound to be subject to regulations and even a bit of friction upon launch. But one area to look for is how disruptive a technology is. Obviously, new lender and banking blockchain apps will enter the space and experience fierce competition. But is your ICO revolutionary and disruptive enough to completely change the market? I don't suggest bidding on an ICO seeking to start in an established space, unless it can fundamentally improve upon a central problem.

Going toward the supply side of the equation, you need to find out whether the platform you’re investing in can respond to demand. As previously stated, what scalability issues and barriers exist that would cause a blockchain project to struggle to meet demand?

You also need to analyze the market capitalization of the product. What’s the long-term growth projections in its market and are you investing under market value. Of course, this will not be immediately visible until the token and product hits market, but there are ways to assess this early on during sale.

What Purpose Do the Coins Serve?

Equally important, you need to understand what type of token you’re actually purchasing at an ICO. Unlike shares in an IPO, tokens or coins often serve an underlying purpose in the blockchain algorithm itself. For example, Bitcoin is a protocol used to verify and vote on transactions within the blockchain. Filecoin is used as a digital storage system and Ether to build out smart contracts.

In a sense, many of these coins have intrinsic value in themselves, which made them attractive to early adopters, beside their set monetary supply. There’s also a difference between work coins and general currency tokens. For example, some protocols may issue work coins that offer merit based privileges within the network.

What are the First Impressions

Investment is equal parts knowledge to equal parts gut. What are your first impressions of the website itself? Is it professional handled, images nicely compressed, and information widely available? Would you trust an ICO running off of a website like that?

Another big factor to consider is the project’s transparency. If the development team doesn’t list their experience or the project itself remains scant in the whitepaper that should be a big red flag.

Another red flag I’ve seen other people discuss is a website that features mining right there on the homepage. Essentially, this means the main incentive for this project is the mining process, meaning its code and network aren’t fully built out.

Really, it comes down to your experience and knowledge of the field. Use these to guide you to the right ICOs and use your gut to make that decision. As always, ICOs are risky, so don’t invest more than you’re willing to lose.