Initial Coin Offering (ICO) is to a cryptocurrency trader or investor, what Initial Public Offering (IPO) is to the stock trader. It acts as a means of raising funds, so a company that is looking forward to creating a new coin, an app or a service that involves the use of cryptocurrency, launches an ICO. This they do to bypass the extraneous processes in raising capital that is mostly required by banks or private investors. After coin offerings are made, prospective investors buy into it, either with the normal fiat currency, or with existing digital coins. As at 2018, there were over a thousand cryptocurrencies in the market. Most of these coins were created with by people, to make money from cryptocurrency enthusiasts.
While there exists crryptocurrency projects that can end up in a bullish form after its ICO, there are also cryptocurrency projects that is engineered to fail from the beginning. It is therefore imperative that you are able to fish out these coin offerings. I have taken my time to list out five of the top characteristics to watch out for when buying into coin offering projects.
The Transparency of the team
This is the most important of anything that is worth consideration. A check on the transparency of the team that is behind the project might involve checking the website of the company, especially for the full names of the people behind it. When there is no name, or the names behind it cannot be traced, such project is laced with the probability of being a failure. Apart from the identification of the team, the correspondence in communication also matters. A good coin offering project should have a good community engagement, answering questions that are raised by investors and dishing out the latest news that borders on the coin. Their projection about the future is also very important, I usually judge this by the numbers they have on their team. If you at any time wish that your coin offering skyrockets in value, then one or two member team can’t handle it.
Pump and Dump Coins
This is one reason why most people lose money in the cryptocurrency market. Pumping and dumping of coins happens when a trader boosts the value of a coin by making it popular on different channels, thereby instigating a higher tendency of prospective buyer to invest. In the process of the price rising, other investors tend to buy. This action continues until the people involved in this crusade suddenly sell their own share of the coin, this action suddenly affects the price of the coin, putting it in a bearish zone. As a trader or investor, you have to watch out for this scheme.
The Project Plan – Whitepaper
The whitepaper is somewhat the plan of the company that is offering an ICO, it contains their business proposal, and the technical details on which their blockchain technology works. Although not all projects in their ICO stage have whitepapers, you have got to find out why this is so. Personally, I won’t invest in a project without a whitepaper. The feasibility of the road map of the project is also very important. Cryptocurrency market is not some Disney world story, it is not easy, so watch out for those projects that promises more for little. Also, the technology that is involved in the project – should a white paper be presented – needs thorough research. The good thing is that we are the age where everything can be sourced from the internet.
MLM – Multi-Level-Marketing
Most times I tend to see the MLM word as MMM. Multi-Level Marketing is in a nutshell, a Ponzi scheme. A Ponzi scheme is a pyramid like structure, with the organization, which is always the MLM company in this case being on the top layer. They recruit new investors through enticing offers, give them returns on their investment and encourage them to refer other people. This continues until a saturation point is reached, or till the company is exposed for its schemes.
Centralization or Decentralization
A centralized project is a project whose network and dealings are controlled by a central body. A decentralized project on the other hand is not managed by a central party, leaving most of its dealings for peer-to-peer interactions. Centralized projects, because they have a single point to collect data can be easily hacked. While there are centralized projects that are doing well in the market space, I will strongly advice that in coin offering, you stay away from networks that aren’t decentralized.