ICOs exploded on the scene in 2017, with several investors turning their donations into millions once the token went live on an exchange. This is the dream sequence for any ICO investor. However, it has become clear that due to the lack of regulation, the ICO space is riddled with scams and can often be an incredibly risky undertaking.
In September of 2017, ICO’s were banned by the Government of China being cited as disruptive to economic stability. Following the lead in early 2018, Facebook, Twitter and Google all banned the advertising of ICOs on their platforms. This resulted in a major blow to cryptocurrencies like ETH and BTC, often used to buy into an ICO.
To learn more about ICOs check out CoinSmart’s ICOs article on the GetSmart Hub.
Regardless, it’s important to recognize ICO tokens for what they are: a disruptive technology. Citing the disruptive nature of ICOs is like citing the disruptive nature of the Internet. Being disruptive is the point. ICOs allow for the funding of large scale projects within a matter of minutes, which is something difficult to ignore.
Anyone can participate and the exchange of funds is completely secure without the need of a centralized authority overlooking everything, as given by the nature of the blockchain ledger. In this spirit, those who wish to participate must learn to pick out the diamonds in the rough. Here are some ways to help determine legitimate ICOs from the scams, using its publishedwhitepaper:
- Make sure the goals of the ICO have been clearly defined and are specific.
- Ensure the transparency of the project. Does the whitepaper disclose important details like all the personnel involved, the location of the project, set timelines, business plans, etc?
- Check for the use of legal terms and conditions in the whitepaper. Since regulations are still up in the air, the inclusion of legal language can show the willingness of an ICO company to adhere to future regulatory oversight.
- Escrow Wallets are used to store the incoming funds. These are wallets with multiple private keys to access the funds generated from the ICO. Usually, if a neutral third party is in control of one of these keys, the legitimacy of the ICO is more valid.
ARE ICOs RIGHT FOR YOU?
Choosing to invest in crypto and ICOs or avoid them altogether is a decision that investors must make for themselves.
Despite the volatile and speculative nature of ICOs and cryptocurrency, there are signs that growth will march on as more people and organizations embrace the use of digital currency.
It’s no surprise then that according to CryptoSlate “the total number of cryptocurrency funds has skyrocketed over the first half of 2018, surging to more than 225 from just 58 at the end of 2017.”
The bottom line is that cryptocurrency and ICO investments are subject to risk, just like every other aspect of investing. Risk-averse investors might decide there’s too much indecision while high-risk investors might see opportunities to leverage volatility. It’s all completely up to you and the investment strategy you feel most comfortable with.