There are so many ICOs and token sales these days, which makes it hard to cut through the clutter. How do you know which projects are likely to become viable businesses and which projects will leave you with empty promises?
When participating in ICOs there are best practices you can follow to reduce the risk of contributing to a project that’s destined to fail, or worse… walk away with your funds. Always follow the overarching rule of “never risk more than you can afford to lose!”
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That being said following these five steps could make or break your success when participating in ICOs.
Step 1: Understand the fundamentals
Most token sales follow a similar format using different parameters. There’s certain information that’s fundamental to every token sale and necessary in determining if it’s likely to succeed. If any of this critical information is missing or appears misleading you should proceed with extreme caution — and mostly likely turn and run!
Four critical components that must be visible and easily understood include:
- The team and their LinkedIn profiles.
- The token or coin supply, breakdown of allocation, and use of funds from the ICO.
- A working product. If there’s not a working product there must be a detailed whitepaper and roadmap outlining future plans of project.
- A whitepaper. This should include all critical details as well as sources. Ideally this will also have a technical aspect to the paper if the project is claiming they will bring a new technology to market.
If any of these pieces are missing, it’s your first sign that the team or individuals running the token sale have not done enough research to understand these critical components.
Step 2: Read, then ask questions
- What’s your reasoning for participating?
- Is it something you are passionate about?
- Can you see the potential to capture market share in the future?
- Will you use this product?
- What does this technology achieve?
- How capable is the team?
- What does the future market look like?
- What does the timeline look like?
- What’s the token supply?
- What will the future market cap look like?
- What is the token allocation?
- What are the incentives?
- What are the use cases for the token or coin?
- Do they have a good design, completed product, or demo?
- Is there access to the ICO smart contract’s code before the ICO?
- Has the code been audited?
- What is the benefit for you holding the token?
- What are the legal and tax ramifications where you reside?
Also spend time checking any outside sources available. Keep in mind many of these sources may have been paid or incentivized to market/promote these ICOs. Make your own decisions and be objective in your decision making.
Step 3: Join the Telegram and social channels
Most projects will have a means to communicate with supporters and investors. This often takes the form of Telegram, Twitter, Facebook, Medium, Reddit, etc. Projects that are well done will have established social accounts across a wide variety of these platforms.
Get involved and see what others are saying about the project. Ask questions in the Telegram chat. Many times you can communicate directly with the team to have your questions answered.
However, please do be respectful and follow steps 1 & 2 before you start asking questions. A few minutes researching on your own can save you the time of waiting for a response. In many cases, answers to all of your questions can be found elsewhere.
Step 4: Double check!
Whenever sending funds to a project always double check to make sure you are following the correct procedures. Often times there will be a token sale guide or instructions on the best practices outlining the steps to send funds to the project.
Always double check that the source of the instructions is the official website of the project. There are many phishers and scammers out there attempting to get your information and have you send funds to the wrong place!
Double check that you understand how to retrieve your coins. Many ICOs will have you register your address or download their wallet. Make sure you are double checking EVERYTHING!
Step 5: Relax
That’s right, relax. If you have done your homework, haven’t risked more than you can afford to lose, and followed all of the above steps you can feel confident in your decision to support the project. Sit back and stand by your decision.
Follow the project’s announcements and stay up to date on any activity or news that is released by the project. Support the project in other ways such as sharing content on through your social channels. Don’t be upset about the little things. Be patient and strategic when selling your coins or using the coins for the purposes they were intended.
Participating in ICO’s can be fun. These projects are new and exciting and are developing amazing technologies. Many are solving massive problems and changing the way that we interact with one another.
While these five steps are not exhaustive, they will provide a solid foundation from which to approach participating in ICOs. Cryptocurrencies are very volatile, so be prepared to weather the highs and lows and hold on for the ride!