Not Every ICO Is a Goldmine

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Investing in ICOs (Initial Coin Offerings) or functional new currencies can be extremely profitable from an investor’s perspective. For companies, it is a crowdfunding alternative that helps them raise funds for new projects. An ICO is an easy and efficient method for startups to generate capital for their new projects.

However, ICO investments can be a risky proposition, and investors need to adequately evaluate this opportunity to avoid selecting a bad coin that may end up costing them a lot of money. You have to constantly be in synchronization with the markets and speculate whether or not the market will lose trust in the currency. Many new investors fail to realize that it’s a wildly volatile space, with many cryptocurrencies losing considerable long-term value.

Strategic thinking and sound judgment are required to decrease investment risk. And although you can’t eliminate the risk, you can mitigate it via proper planning—namely, sagely choosing the right cryptocurrency to invest in. In light of this, below are four things to consider before you put your money in ICOs.

Know What You Are Actually Buying

Firstly, you must completely understand exactly what you are purchasing from the company. Generally, investors realize that these tokens are equivalent to vouchers, certificates or other documents that confirm the ownership right to a specific asset of the company. The more important question is, “What type of asset am I buying specifically?”

You should know there is no globally-accepted ICO mechanism or protocol, and companies may sell whatever they like. Typically, they sell the right to a portion of their revenue (dividends), ownership to a specific part of their intellectual property or ownership to an internal resource (like virtual values). 

In sum: Figure out what your token is linked to and seek to understand how the cryptocurrency is backed. Carefully Consider Company Partners

The next thing to consider is the identity of the partners or associates of the company. These are exchanges or electronic platforms that are willing to exchange company tokens for electronic funds. Your trust in these partners should ideally reflect the level of trust you invest in the entire project.

You will find this information on the company’s website or in documents that are usually attached to newsletters. It is also important to consider information about the project team and leaders. Startups are usually quite open and often publish this information on their websites. The absence of such information should be a red flag.

Understand the Importance of SSL Certificates

An SSL certificate is the third important detail you need to consider. When you open a company's website in your browser, you will often see a green padlock icon. It is on the left side of the address bar. In there is no such icon, immediately shut down the website. And if there is a red, open padlock icon, you should leave the webpage immediately. Even in cases where the padlock is “locked,” make sure you check that the SSL certificate is actually issued in the name of the organization that you intend to buy assets from. You can easily inspect it by opening the Security tab in Debug console and clicking the View Certificate button.

Check Ratings

It is always a good practice to check ratings before investing in any cryptocurrency. Agencies usually assign ratings on a risk scale ranging from negative to stable. This is vital, as the emergence of new business models creates great opportunities for investors, but a nascent market usually carries substantial risks because of the lack of transparency, reliability and quality assessment standards. This often leads to many fraudulent schemes.

While you can’t expect to immediately “strike gold” when entering the ICO fray, cryptocurrencies nonetheless hold much promise for savvy investors that are willing to perform the necessary legwork to understand the complexities and challenges that exist.

Article by Anti Danilevski, CEO and founder of KickICO