It’s that time of the day again. You hear about a new coin entering the cryptocurrency space. An initial coin offering — an ICO. How do you analyze it?
With thousands of coins already on the market — and new ones being created daily (as can be seen by the numerous ICOs on Coinschedule), how exactly do you determine which ICO is legitimate — and which ICO is a scam?
I believe that there are six key factors you can look at to quickly determine whether or not an ICO is worthy to be invested in. These factors shouldn’t be the end all be all of what you look at to analyze an ICO’s potential, but hopefully this will give you a good starting point to doing your own research for ICOs.
1. The team & investors
This is one of the most important aspects of any ICO. Who is the team behind it? Who are the investors? Who’s backing and supporting it? Before determining the legitimacy of a coin, get an understanding of the people behind it.
Do they have any credentials or the skillsets required to run the coin’s technology? Are they transparent?
Are there any videos of the team discussing the project at blockchain/cryptocurrency conferences and meetups?
Are there any interviews with the founder(s) of the token? A good example is Sergey Nazarov (founder of Chainlink) discussing his project at the DevCon3 conference: https://www.youtube.com/watch?v=kW27zYIxZhY
The amount of members on the team is also important. If an ICO only has 1 or 2 members — how powerful do you think the team will be in fulfilling their roadmap?
2. ICO Information & Whitepaper
How much information about the ICO is available? How much news and data can you find about it? Look for pre-sale start and end dates, directions, etc. Is this information present? Look at how much money the ICO is attempting to raise. Does it seem like a reasonable amount to you? ICO Watchdog can help you setup a daily ICO funding report so you can keep track of the progress of ICOs easily.
Look at the token distribution — how much of the token will the ICO team hold, and how much will they distribute to investors? For example, if an ICO team will hold 90% of the token supply, it’s too overly centralized. If an ICO team holds only 1% of the token supply, the team probably won’t be that motivated to develop the token because they don’t have much skin in the game. Is the ICO a utility token or a security token?
Most ICOs will have a whitepaper of sorts. At least, the real ones do. That being said, shady ICOs will have shady whitepapers. Double-check the advisors in the whitepaper are real people.
Take time to analyze and read an ICO’s whitepaper — and whether or not their vision seems realistic and feasible. There’s no universal structure or best practice when it comes to presenting a whitepaper — but you could really tell a quality whitepaper from a poor one. How is the quality of the language? How long or short is it? Is it detailed? Does it answer your questions? Does it sound reasonable to solve the problem it’s taking on?
3. The purpose behind the token
What’s the purpose behind the token? What problem is it solving? What’s the story behind it? Does an existing coin — like Bitcoin or Ethereum — solve this problem already?
Try to avoid coins that are redundant. Take, for example, the Bunny Token. Why couldn’t payments on the platform simply be made with Ethereum instead?
Ask yourself if the ICO is attempting to solve a problem that doesn’t really exist — or if the solution they are proposing makes sense.
4. The website
First impressions count. In the online world, websites are the mediums we use to judge the trustworthiness and professionalism of any business or product. Is their product clear and easy to understand? Does their website look like the real deal — or does it look like it was made in less than an hour using Wix?
An example of a bad website for an ICO is the website for the “PayPro” token: https://www.payproapp.com/.
The Telegram link goes to a “Free AirDrop Alert” chat room. (Telegram is the most common platform that ICOs use to interact with its investors), no team members are listed, and the website looks like it was hacked together in an hour.
An example of a (now completed) ICO with a good website is the website for Request: https://request.network.
The website looks clean and organized. It includes links for its various social media channels (Reddit, Telegram, Twitter, etc.). The website shows the use-cases of the token, a clear development roadmap, the team, and business partners.
5. Social media presence
Another aspect to consider is their social media presence. How big is their following? Are they active on social channels? Facebook? Twitter? Telegram? Most legitimate ICOs will post frequent updates and create a Bitcoin Talk thread announcement.
On the same note, keep an eye out for “shill” profiles on social media. Illegitimate ICOs will often run an army of fake accounts that are used to hype the coin. These accounts are run by their own team members or marketers they’ve hired online.
6. GitHub Activity
The amount of activity on the ICO’s GitHub page is an excellent indicator on the technical progress that the team has made for the token. If you don’t know, GitHub is an incredibly popular code repository used by teams to store their code.
Check to see if a team has a public GitHub repository for the platform they are building. Although having a technical background helps, it’s not necessary. Checking to see if the GitHub repository is continually being updated should give you a good idea of the technical progress for the ICO. Here’s a few examples of Github repositories for popular cryptocurrencies: Bitcoin, Ethereum, EOS.
Notice how these projects have been updated recently and changes are continuously made. This is usually a sign of a token that is progressing well technically. Check out Flipside Crypto’s GitHub Index to get statistics on GitHub repositories of many cryptocurrencies.
These are just some factors you should consider while determining whether or not an ICO is legitimate. You should not look at any one factor in isolation, but rather look at all factors as a comprehensive analysis of the ICO.
At the end of the day, if you are planning on investing in a token it is best to do your own research (DYOR). Token recommendations from friends or family can be useful, but they should only be used as a starting point to DYOR. Invest wisely.