The cryptocurrency industry is booming, and there has never been a better time to get into the game by making the right ICO investment. By now you have likely heard plenty of news surrounding cryptocurrencies, including both the good and bad. Many new coins are being created, and there are now more stories of success and failure than ever before, but between all of the hype surrounding these new cryptocurrencies, it may be hard to separate the useful information from the empty noise.
The first step to being able to successfully participate in ICOs is to understand what they are and how they work, and it is especially important to understand how they ultimately provide a return on your ICO investment if everything goes well.
What are ICOs?
An ICO is an abbreviation of initial coin offering, which refers to the way in which a new blockchain project funds itself so that their new cryptocurrency can be launched and put into circulation.An ICO is based off the same model as an IPO (initial public offering), which is when a company offers its stocks to thegeneral public for the first time. The idea is that when a new blockchain project is being launched, the developers will offer units of their new currency to buyers, usually in exchange for fiat currencies or for Bitcoins. If the project goes well, and the new cryptocurrency enters circulation, then the first investors will gain a large return on their investment.
There are of course many factors to take into consideration when considering which ICOs to invest in. Some ICOs will become enormously successful and create many happy investors. Others will fail miserably leaving many investors with lighter wallets. Other ICOs are actually just scams. As scary as this may sound, there are many simple signs that can easily be seen which will let you know if an ICO is worth the risk of investing in it.
How do I know if an ICO is Legitimate?
If you’ve kept up with recent news, then you have likely heard of ICO scams and their ominous rise recently. In fact, Facebook banned ICOs from advertising on their platform earlier this year. Despite this and all of the negative press, ICOs continue to come out, and altcoins continue to thrive. Due to these developments, the first thing on your checklist should be confirming the legitimacy of the ICO in question.
The easiest giveaway of an ICO scam is a lack of transparency surrounding the project and its team of developers. If the development team is not at least somewhat well known, then it is not only likely that the new blockchain project is in inadequate hands, but it is also likely that it is a scam. This fact is all the more significant if the development team is entirely anonymous. It is incredibly important that there is a face behind the project, and it is preferable that that face stands to lose credibility should the project be a failure. If the developers are respected members of the cryptocurrency community with a high level of visibility and a career on the line, then it is far less likely that their project will fall in flames, and extremely unlikely that it is an outright scam.
Ultimately, legitimacy in any given situation comes from transparency and credibility. If the people behind a new ICO have put something valuable on the line, then they are likely to have worked quite hard to try to ensure that their new blockchain project will be a success. For these reasons and more, it always pays to be well informed and generally try to avoid cryptocurrencies and ICOs that are removed from the spotlight. Keep up with the news, become familiar with the big names, key concepts and innovations in the business, and you will be inherently better equipped to make sound judgments, and more likely to succeed in your investments.
How do I know if an ICO is Likely to Succeed?
If an anonymous or shady development team is a clear sign of an apparent failure in the making, or an outright scam, then a well publicized, high quality team should conversely be a sign of a greater chance of success. It is wise to stay informed and always ready to make the right move. An ICO investment should be a long term, well thought out decision.
Another good sign for an ICO that will likely yield good results is an innovative vision which differentiates it from the many others. Some new blockchain projects gained traction very quickly, and the reasons for their success were a bright team behind them, as well as a new idea which separates them from their predecessors. A new copy of Bitcoin will not excite people very much, whereas a new idea, even if it is just one new update or convenience, can change the entire outlook regarding a prospective ICO investment.
Why do so many ICOs Fail?
The first place to look in order to find out what works and what doesn’t is to the graveyard of attempted ICOs that crashed and burned. What do all of the failures have in common? The first factor is simply poor cryptography. Creating a new cryptocurrency is not as simple as many imagine, and small mistakes made at any point in the process can cause the entire attempt to end in failure. An error in cryptography can cause the value of the coin to never rise to an acceptable amount, or cause a myriad of other problems.
A more predictable problem that afflicts many ICOs is simply a lack of traction. Some ICO investments will be poor choices simply because the ICO is not popular enough, has no real coverage, and simply isn’t going anywhere. In order to ensure that your prospective ICO investment will provide a good return, make sure that it has many eyes on it, as well as plenty of media coverage coming from reliable sources.
Finally, look to other successful examples from the past. What did they have going for them that caused them to attain very high values, fame, and many happy ICO investors? Take Ethereum for example. It is one of the older coins, and it is now a great success story. Ethereum had a bright development team, and offered the greater utilization of smart contracts, giving it more utility for merchants. Other examples include Monero, offering far more privacy than Bitcoin or other altcoins, or Ripple.