Overall, do your homework, and if a project sounds too good to be true, it probablyÂ is
If youâ€™re interested in contributing to an ICO, thereâ€™s no shortage of blockchain projects to choose from. But how do you know whether or not the project youâ€™re interested in will be successfulâ€Šâ€”â€Šor worse yet, whether youâ€™re looking at aÂ scam?
To start with, itâ€™s helpful to know elements a successful blockchain company will most likely have in the lead up to its ICO. So, consider the following.
Does it Solve aÂ Problem?
The company launching a token should be trying to solve a well-defined problem. You should understand from their white paper and website exactly what that problem is, why it needs to be solved, and how their project canÂ help.
If the purpose of the project is unclear, there may not be much long-term value. Consider whether you would want to contribute to a project where the mission is not crystalÂ clear.
Does it Have a Sensible TokenÂ Model?
Look at the economics of the token. You should understand how many tokens will be released, when the token sale begins and ends, how many tokens the company will hold, whether there is a market cap, and what you can do with your token after theÂ ICO.
Again, if the details are fuzzy, you should start asking questions. If the company doesnâ€™t seem interested in answering your questions, or if the answers are equally vague, steerÂ clear.
Is the project relevant to blockchain?
The project should clearly identify how blockchain technology will be used to solve the identified problem. Not all projects are suited for blockchain technology and ICOs are not always necessary. Make sure the ICO you are contributing to has a clear purpose, product roadmap and most of all, a model that demonstrates future or current demand around the projectâ€™s token orÂ coin.
What is the long-term revenueÂ plan?
This is a continuation from the above points. Consider the projectâ€™s future beyond the ICO. Is there a plan in place for further research and development? How will the project take its technological innovation to market? How will it generate revenue? A blockchain company with a clear vision and business plan will be able to articulate the answers to these questions.
Is there an active community engaged with theÂ project?
There are a lot of ICOs out there. The most successful ones tend to already have an active community and passionate supporters. Do some researchâ€Šâ€”â€Šdoes the company have an active Telegram, Reddit, or social media presence? Is there any discussion about the ICO in the BitcoinTalk announcement thread? Look at the quality of discussions and see how the teamâ€™s developers respond to questions.
Is the team experienced?
Look specifically for experience in the cryptocurrency or blockchain field. Whether itâ€™s a seasoned team or a panel of advisors, consider whether the company has the right people steering the ship. Sometimes you can see whether any well known venture capitalists have invested in the project, or watch or listen to interviews with key team members to get a better feel for theÂ company.
And what red flags should youÂ avoid?
The United States Securities and Exchange Commission (SEC) recently issued a warning about potential ICO scams. The SEC highlighted a number of red flags to look for, including:
- Promises of guaranteed high returns: All investments involve some degree of risk. Any company promising guaranteed returns is most likely one toÂ avoid.
- Celebrity endorsements: Dropping a big name can garner interest, but it doesnâ€™t necessarily mean the company is legitimate. Do your due diligence and look at the project and people involved.
- Asking for credit card details: In the crypto world, you do not need to hand your credit card details over toÂ anyone.
- â€œPump and dumpâ€� schemes: Look out for hyped up, false, or misleading information that is designed to â€œpumpâ€� up the price of a token in order to create the opportunity for project insiders to â€œdumpâ€� shares of the token by selling their own tokens at an inflatedÂ price.
Overall, if a project sounds too good to be true, it probably is. Do your homework before contributing to an ICO and understand what youâ€™re looking at before diving in. A company with a strong vision, clear technical details, community presence and customer support is more likely to be successful in the longÂ run.
How to Spot a Successful Blockchain Companyâ€¦ and Avoid a Bad One was originally published in Etherparty on Medium, where people are continuing the conversation by highlighting and responding to this story.