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What to look out for when investing in ICOs

What to look out for when investing in ICOs
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ICO or Initial Coin Exchain refers to crowdfunding through blockchain. As more people look to and favor the autonomy and security provided by blockchain, so too do the innovations surrounding blockchain increase. It is no wonder that there are ideas such as ICO cropping up. However, as ICO continues to spring up everywhere, it has also brought up a negative reputation since one cannot be sure they are not ICO scams. Perhaps we trusted blockchain too much, or maybe we have underestimated human folly and greed, but the number of ICO scams keeps growing.

What is ICO?

As mentioned, an ICO is crowdfunding through blockchain. The process is very smooth and requires outlining the project, setting up a website, and waiting for people to invest their cryptocurrency. Thanks to the privacy of blockchain, those who donate, and those who receive the cash are entirely private. The question you must be asking yourself is why someone would deliberately give away their money for a venture that might not even work out, especially when they don’t know who receives the money?

ICO doesn’t offer shares in the company. Instead, the investors get tokens, which are created by the initiator of the ICO. It is also up to the creator to determine the value of the ICO tokens. The value of these tokens depends on the amount of money invested. The token could be exchanged for something within the company after it starts operating. For instance, the token could represent five years’ worth of software development or 1 years’ worth of fashion shopping. Although the concept is new, it is quite well received and is one of the primary reasons why ICO got so popular.

The challenge of ICO

The most significant problem with ICO is the lack of awareness of ICO scams since they are relatively new. Besides, the privacy of blockchain provides some measure of security to the scammers. Naturally, it is more difficult for newbies in the crypto world to know how to spot an ICO scam. However, that doesn’t mean that veterans fair any better, considering that ICO scams are starting to get too sophisticated as time passes. Therefore, it is a necessity to learn the characteristics of an ICO scam before you find yourself as a victim.

The characteristics of ICO scams

  • Vague information

Any real business would have detailed information on everything from the intended products to the teams responsible for the startup. However, if you notice that the team responsible for the ICO doesn’t disclose any particulars about the plans for their business or the information on team members, then you should beware of an ICO scam. The most basic red flag is the lack of whitepaper.

  • Pyramid marketing

Pyramid or multi-level marketing refers to where the scammer creates tiers, and the investors have to continue to pour money into the startup, providing the opportunity to access higher tiers. Of course, the investors are expected to draw in more investors into the scheme. Pyramid marketing has been around for years and seeing the execution of multi-level marketing strategies in blockchain is quite disheartening, especially since one of the key features of blockchain is its lack of fraud.

  • Unrealistic promises

To secure funding for business startups, entrepreneurs have to make promises to their investors. However, such promises and the ones offered by ICO scammers are two different breeds. ICO scammers always promise too much reward for a business that should be incapable of fulfilling the promises.

How to deal with ICOs

  • Meet the team

Before making any decisions on the investment, you should meet the team responsible for the business. Although blockchain helps protect the identities and privacy of the individuals, there should still be information about them somewhere that you can use as a reference. Ask for their contact information and ask as many questions as possible before making your investment decisions.

  • Read the whitepaper

A whitepaper is a document that details the strategy, goals, background, and timeline for the implementation of businesses and other projects on blockchain. You should read through the document and consider everything before investing. If you have no idea how to evaluate a whitepaper, you should hire a professional to go through the details and explain to you what is essential and what is not. Then you can determine whether the whitepaper is realistic or not, after which you can choose to invest or abandon the idea.

  • ●       How actionable is the plan

As an investor, you should know how to gauge good and bad investments. Therefore, you should have some understanding of what it takes to run a successful startup and establish a big business. One of the core factors to consider is the feasibility of the plan. After the plan is disclosed to you, you should assess it to determine whether you can get more profits than losses. Of course, should the feasibility of the plan not be satisfactory, you should immediately back out of the deal as it may be an ICO scam.

Is ICO worth it?

After confirming that a project is not an ICO scam then would it be wise to invest in ICO? The answer to that would be no. Frankly, ICO is a concept in its infancy and it needs time before people can come up with better guidelines. At the moment, it would be a huge gamble to invest in ICO because even if it turned out to be realistic, you would still not be sure when you would get a return on your investments. There are far too many things that need to be ironed out before the implementation of ICO, including the reduction or elimination of ICO scams.

Another reason you shouldn’t gamble on ICO is the nature of blockchain. We have only just started pushing the limits of blockchain and have yet to find the loopholes or understand its rules. Therefore, you need to wait until people have a clear idea of what can and cannot be done through blockchain. Nevertheless, if you’ve already invested and have not been scammed, then you should hold onto those tokens. Perhaps you may be holding on to the future.

Jack is an accomplished cybersecurity expert with years of experience under his belt at TechWarn, a trusted digital agency to world-class cybersecurity companies. A passionate digital safety advocate himself, Jack frequently contributes to tech blogs and digital media sharing expert insights on cybersecurity and privacy tools

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