The cryptocurrency market has exploded in recent years, especially after the 2017 bitcoin bubble burst. There are now over 6000 cryptocurrencies, and investors are using digital currencies as seed capital for new businesses.
Initial Coin Offerings (ICOs), which are gaining in popularity, include raising funds for new blockchain ventures by selling underlying crypto tokens.
Although ICOs are unregulated, the process is similar to that of Initial Public Offerings (IPOs). Since it is unregulated, it is an ideal way to avoid the time-consuming and constrained mechanism imposed by financial firms and venture capitalists. It does, however, come with a range of threats. You'd expect some degree of fraud in an uncontrolled operation involving financial capital.
Fraudulent entities can try to give an ICO in order to boost cryptocurrency prices to a certain amount, after which they will sell all of their holdings. As a result, coin owners lose money because their coins lose value. As a result of these dangers, some countries have declared ICOs illegal, while others have attempted to regulate them.
Look for red flags in whitepapers and websites.
A valid whitepaper should include all of the company's information. Information about the product, its target customers, and how it supports them, the token value, the team behind the ICO, and their verifiable personal profiles are all included.
The whitepaper can be used to determine whether or not to engage in an ICO. A whitepaper, which is the equivalent of a company's business plan, is needed for legitimate ICOs. As a result, any detail that has been glossed over or data that is vague is a major red flag. If crucial information is missing from the whitepaper, the ICO is a no-go.
Furthermore, the company should have an official website where investors can obtain additional details. Examine the web objectively, noting any claims that are misleading or impractical. Check the investors' credentials as well, and if anything seems fishy, don't take the risk.
Be Wary of Promises That Aren't True
There are no sure bets in the business world. When a promise sounds too good to be true, it's time to take a step back and reconsider. Even in a legitimate company, you will lose money if you do not make reasonable decisions or do not have a proper plan in place. Excellent opportunities exist, but you must first complete your homework.
Some ICO con artists will claim to have already made a fortune, but this is a scare tactic designed to make you feel like you're missing out on something major.
Take it as a warning sign and stay away if the Initial Coin Offering company offers high returns right away or tries to assure you that you can benefit from it.
You may take it a step further and request to talk with other successful investors, but proceed with caution. Request clarifications and responses. If a vital piece of information is missing, believe it was left out on purpose.
Assess the Supporting Team
Not only should a valid ICO project have entrepreneurs, but it should also have a vibrant and welcoming culture. The society should be made up of people who are experts in their fields. Scammers are aware of this and may claim to have a group of over 40,000 members, but the majority of them are most likely bots designed to deceive potential investors.
Look up the number of people who have signed up for the site and look at their profiles to spot fake group accounts. Examine their social media pages to see how old they are, what they share, how many followers they have, and whether or not there are any re-posts about the project from commenters. Examine the project's ongoing interactions and their existence.
If you can check the existence of the members and the flow of appropriate communication, the ICO can be legitimate.
Is There a Clearly Defined Road Map?
All else may seem to be real, but without a simple roadmap, how far will it go? From the past, current, and future, carefully observe the schematic of the project phases. A serious ICO would provide an up-to-date rundown, so investing if it is lacking is a poor move.
How Do They Handle Money From Investors?
When it comes to managing investor funds, the organisation should adhere to industry best practises. Although you have yet to invest your money, you may learn from those who have already done so. Check where the entrepreneurs' donations go to make sure they aren't going to a brokerage account or being cashed out by the company.
Such cash management activities are red flags that the team could be stealing money from investors.
Pay attention to your instincts.
Any investment should be made after careful consideration and analysis. You should approach the ICO in the best possible way, and everything you've learned from your research appears to be true. Your guts, on the other hand, might be communicating something different, and you are uneasy.
You should trust your instincts if they tell you anything isn't right. There are a plethora of ICO options available, and you can always find another or even better one.
Final Thoughts
ICOs are an excellent way to collect money and make big profits for investors, despite the fact that they are high-risk investment options that are still unregulated in most countries. You should assess the warning signs of a possible ICO scam, but keep in mind that legitimacy does not guarantee benefits.
Investors should do their homework and approach the investment as if it were any other, rather than a once-in-a-lifetime opportunity. You might make a lot of money, but it all comes down to chance. You can, however, improve your chances by carefully examining any opportunity that comes your way. That way, you're less likely to fall prey to con artists or invest in speculative ventures.
