The new gold rush has entered the crypto space and large groups of enthusiast are seen rushing to the shorelines in attempt to get their piece of the gold. It seems like there is a new ICO popping up every two days and there isn’t enough time to decifer the gems amongst the junk.
The first-ever cryptocurrency ICO , which took place almost exactly 4 years ago was conducted by MasterCoin, now known as Omni, which raised nearly 5000 BTC. A year later, Ethereum raised over 30 000 BTC. Two more years later the DAO gathered a record-breaking amount of approximately 150 million USD in a couple of days. Just last week we saw Bancor raising 153million in just a couple of hours. Some say we are in a ICO bubble, some say not yet.
What we are seeing is a shift from the veteran crypto followers to the regular folks with no previous knowledge or reference joining in on the joyride. A factor that defines a bubble is the influx of new money, combined with crowds that are moving with irrationality and emotions.
This article is written with the hopes of aiding the fortune seekers into making informed decisions.
1.Thou shall read the whitepaper
Im willing to bet that not one out of 10 read the whitepaper before investing. Yet it’s the single most important piece of information. Yes it can get very tedious with pages of what appears like mathmatical gymnastics. But approach it like medicine, bitter yet necessary.
“A white paper is an authoritative report or guide that informs readers concisely about a complex issue and presents the issuing body’s philosophy on the matter. It is meant to help readers understand an issue, solve a problem, or make a decision.” — Wikipedia
How good of a job is the project doing in presenting that? And would you buy a house without checking it’s foundation and ability to stand long term?
2.Thou shall evaluate the value proposition and ask “What’s in it for me?”
What are you getting in exchange for your hard earned money?
Usually there are three versions:
In return for payment the buyer gets equity/stake in the project and potential dividence in future profits
In return for the payment the buyer gets cheap tokens which can later be sold on exchanges for profit(assuming the value rises).
In return for payment the buyer gets tokens that can be utilised when engaging in the platform services.
The first option is the rarest, an sucessful example is DigixDao but very few ICO’s offer that. Most kinda say, “hey were planning on making this awesome thing, it’s gonna revolutionise the Internet”….yada yada. Big words and flashy marketing should not sway your choices. For an excellent detailed write up on the economics of ICO’s, check out Avtar Sehra helpful article.
https://medium.com/@avtarsehra/economics-of-initial-coin-offerings-c083311e53ec
3.Thou shall do background check on the team
Would you give 1000 bucks to a random guy in a nice suit, with a sweet talking voice and a flashy car?
Anybody can throw up a sexy landing page, and a couple of youtube videos. There is no magic dust that makes blockchain developers immune to failure. Some sobering facts from smallbiztrends.com.
A bit more than 50 percent of small businesses fail in the first four years. In fact, of all small businesses started in 2011:
-4 percent made it to the second year
-3 percent made it to the third year
-9 percent made it to the fourth year
-3 percent made it to the fifth year
There is no end-product without a creative, productive team and a stabile management. Do your due diligence and asses for yourself if the project and the people behind it has what it takes to survive.
4. Thou shall observe the teams conduct
Everybody presents their good face upon presentation. But it’s in the face of constructive critisism and critique that the real charachter presents itself. For example, Tezos ICO is coming up and some folks on reddit wrote their legitimate concerns and questions regarding the project and its management.
The response from the management was anything but professional and quite childish. If they can’t take some hard questions, are they to be trusted with your money?
See the whole thread below.
5.Thou shall only invest that which thou can afford to loose.
It may go up, it may go down. You might loose, you might win. Prepare for the worst.
6.Thou shall factor in the cap.
TenX has a upcoming ICO and a few weeks prior to launch they doubled the cap which in effect meant that the buyer would get diluted and get less for his/her money. The cap is an extremely important element which has a direct relationship to the value of the token. Scarcity+demand=higher value.
Some projects have a supply of billions of tokens so the numbers are not on your side on those, atleast not in the short run.
7..Thou shall decide your motive
Are you in it for the long haul or are you tryinna dump the tokens on the exchange and make a buck?
Before investing, decide your motive and consequently your strategy.
8.Thou shall read through the terms with a fine tooth comb.
Like any legal document, make sure you know what you are getting yourself into and if the terms are reasonable enough to encourage an investment.
Even if you have and your’e all positioned and good to go, be wary of greedy opportunists. Bancors questionable and highly suspicious move to extend the cap was in direct violation of their own T&C. They blame spamming, which conveniently put a huge amount of funds into their pockets.
9.Though shall fear FOMO
Fomo is real. Fomo is not logical. And fomo is not your friend. With tokens shooting up to 1000'sX it’s tempting to jump on any token that promises to be the next big thing. Keep cool though and invest wisely.
10. Thou shall not be scammed
Sonm’s ICO is currently pending and it became a disappointment to many. Not only did they make an extremely shady move to dump the escrow in the last minute but they also did a poor job protecting their investors againts scammers.
You can find the drama below.
Thanks @cryptofiend for the headsup
https://steemit.com/ico/@thecryptofiend/psa-if-you-are-planning-on-investing-in-sonm-please-read-this
A responsibly run ICO will look to protect the buyers and make the purchasing as transparent and straight forward as possible. They will have control of their social media channels and actively inform that all official information will come from their website. Do not, under any circumstances send your funds to an unauthorized adress, don’t be that guy.
Lastly, some pointers for what a promising project might be.
-The whitepaper is informative, well written and detailed.
-The terms are clearly spelled out
-The cap is communicated
-A budget and roadmap is presented
-The team has a solid reputation
-There is a ready working prototype or MVP
-Escrow service is available
Good luck and may you prosper in your pursuits :) Follow me on Steemit and share if you enjoyed it.
Most importantly ask if there is as valuable usecase of this new coin and check that it is a real blockchain technology and not just some database application.
True.
Hello @lotusline, great post! I'm a new Steemer who just got started here. I would love it if you could take a minute to look at my blog and follow me if you enjoy my articles. Much appreciated!
Hi nickdavison, good to meet you.
Thanks will check you out.
Hey great article. Also funny ! I'm doing similar in my blog if you'd care to take a look. I've been writing some posts on ICO Valuation, so far talking about how not to get scammed and how to properly evaluate an ICO team. I wrote a post about my own view on the whole bubble thing. My point is very simple, if each one of us do not make their part, we can ruin the party. If we get enough bad examples out on the street we'll sure piss off a bunch of regulators and traditional investors, and that will likely limit the whole of crypto and blockchain economy's growth. I'm glad to see you're making your part !
Also, don't miss out on the CFA Institute's view on the ICO Bubble.
I'll keep an eye open for your upcoming posts !
Hi Pedrombraz, thanks for your thoughtful post. About to check out your links now.:)
And definately agree, the more we as a community, help each other out, the less food we give for scammers and regulators.
say word ! appreciate the response.
Good points in this post. Thanks for bringing this to my attention. It's facinating how people invest 10's of millions of dollars in "just an idea". This is quite an interesting website I found: https://www.coincheckup.com They researched and analyzed every tradable coin out there.