Even though ICOs have never been more popular than they are right now, people still need to be aware of the risks associated with this industry. There are quite a few signs which should immediately raise concerns over any ICO project on the market today. Unfortunately, it seems a lot of individuals ignore these warning signs in the hopes of making quick money.
5. Phony Team Information
As we have seen with various initial coin offerings in the past, there are often questions regarding the legitimacy of some projects’ team members. We have seen a fair few companies list major cryptocurrency names – such as Vitalik Buterin – as advisers, even though such people have no ties to these projects whatsoever. Moreover, some projects seemingly use fake names and photos to make their offerings seem more legitimate. It doesn’t take much effort to sniff out the genuine projects in this regard, even though novice investors can be fooled quite easily.
4. The Buzzword Syndrome
Although it is quite impressive to use terms such as “decentralization”, “blockchain“, and “consensus”, it is evident that showing a true understanding of these terms is a different matter altogether. Quite a few projects tend to throw these fancy terms around, yet their business models have nothing to do with any of those concepts. Additionally, not every idea needs a blockchain, but time will tell how this plays out for most of the ICOs on the market today.
3. A Useless Token?
One of the main questions every ICO investor should ask is whether or not there is a need for a given token in the first place. A lot of projects build on top of the Ethereum infrastructure. As such, most of the actions performed on “new” platforms can be completed with Ether, rather than with the native token issued during an ICO. There are very few projects which really need their own token, but it would be impossible to host an ICO without having a token to offer.
2. The Token Supply
The word “supply” in the cryptocurrency world has a few different meanings. There are the circulating supply, the total supply, and the maximum supply. For a lot of ICOs, the numbers associated with these three terms are vastly different. If only 10% of the maximum token supply is sold to investors, there is plenty of reason to be concerned about the future of a particular project. Some projects also seemingly have the option to establish large reserves or create more tokens on demand, which is not necessarily a good thing.
1. No Working Code/MVP/Demo
Before anyone should be asking for money, the least they need is some working code to demonstrate their ideas. Organizing an ICO is about so much more than just writing a whitepaper and putting together a website with a fancy business template. Unfortunately, there are a few ICO projects out there which do not have any working code at the time of their crowdsale. It is unacceptable to ask for people’s money without demonstrating the basic ability to put your ideas into code, even if it is unpolished and only partially finished.
Without any indication that an ICO team is able to deliver on their promise, there is no reason anyone should invest in a given project whatsoever. It is only a matter of time until more people start to realize how much of a problem the lack of working code can be. An alpha version of the project people are trying to bring to market should be the default standard at all times. Unfortunately, that is not the case as of right now.