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An Initial Coin Offering, or ICO, is a process used by new cryptocurrency projects to raise capital for the launch. Early investors get the opportunity to get in on a project before it hits major exchanges, with the hope of turning substantial profits. However, while there are big potential gains to be made by choosing and investing in the right ICO, the market is unregulated which means there is the potential for scams and schemes.
Below, we look at some of the ways you can perform due diligence and determine whether an ICO is legitimate before parting with your hard-earned cash.
The Good ICOs
New cryptocurrencies launch virtually every month. Some go on to become significant players in the cryptocurrency field, netting their founders and investors large sums of money. Others fade just as quickly as they launched. The best crypto ICOs are backed by teams of experienced, skilled professionals, have viable use cases, and even have agreed collaborations and partnerships with others. According to crypto content editor Connor Brooke, they just need initial investment to help promote growth during the early stages.
The Bad ICOs
While there are legitimate ICOs for legitimate cryptocurrency concerns, there are also scams and schemes that are designed to do nothing more than extort money from would-be investors. Buyers should only ever invest money they can afford to lose, and they should do their own due diligence before parting with their money.
Beware Unrealistic Promises
ICOs do have the potential to make money, but profit isn’t guaranteed. Beware of any opportunity that offers unrealistic promises. Some coins will go on to make 10x or even 100x profits, but these are rarities, and if a coin is promising these returns, it is a sign that, at the very least, they’re being unrealistic in their targets. And, at worst, it’s a scam and the organizers are attempting to get money for nothing. A project should include token economics (tokenomics), which includes details of how many coins will be minted and how they will be distributed, but not unrealistic promises.
Avoid Unrealistic Demands
To buy into an ICO, you will need an appropriate crypto wallet and may need to use a specific cryptocurrency like Ethereum, Bitcoin, or Solana, to buy the new coins. The ICO may also set a minimum or maximum limit on the number of coins you can purchase. However, they shouldn’t ask for personal details or require any future commitments. If you are asked for any of these details, take the opportunity to have a second look at the ICO project.
Read The Whitepaper
Every ICO should have a whitepaper. The whitepaper includes all the important information on a project including:
- Project specifics
- Blockchain network
- Project leads
- Tokenomics
- Roadmap
- Use Cases
Research The Use Cases
Use cases are practical applications of how the crypto will be used when it launches. For some cryptos this might be as the native currency on a new blockchain. Meme coins, which typically don’t have any practical use, can have quite vague use cases, but their aim is essentially to go viral, and you should know if you’re looking at a meme coin.
Check The Team Behind The Coin
Behind every good ICO is a team of skilled and professional founders. The whitepaper should include details of project leads as well as important members of the development team. It might even include details of marketing and advertising professionals.
Find the names in the whitepaper and do your own research on them. Check their educational and employment background, if they have any, and look on LinkedIn for details of their work. If you can’t find any project names, this should raise serious questions about the legitimacy of the project.
Look For And Verify Collaborations And Partnerships
Coins that are established with a very specific purpose will often have collaborations and partnerships in mind. Some will even have those collaborations in place before they launch.
If an ICO lists partnerships, look for further evidence that these collaborations do exist. Search for the partner organization and look at their blog or press releases. Check their LinkedIn page and search news sites to find verification of the deals.
Look Online
A cryptocurrency will have some kind of online presence before it launches an ICO. They will use a website or other presence to promote their coin and highlight their plans.
While it is just as easy, if not easier, to set up a fake website to accompany a scam ICO, you can verify and validate details on the website, too, and look for press releases and mentions of the site elsewhere on the Internet. You can also search for reviews or comments made by others. Use this opportunity to properly search online for details of the project leads, as well, and make sure they haven’t been involved in failed ICOs or other failed projects in the past.
Join The Community Discussion
A lot of cryptocurrency discussion happens on Telegram and Discord. If you are interested in a particular ICO, see if they have any discussion channels open and join them. Not only will this give you a chance to be able to listen to others, but you will be able to ask questions and hopefully get forthright answers.
You can also usually find other discussions on X, Reddit, and other social media websites, and they are worth checking out, too. While it’s true that you can’t believe everything you read online, if you scratch beneath the surface of reviews and a cryptocurrency’s website, you can find a lot more information.
Conclusion
DYOR is an initialism that is commonly used in cryptocurrency and it stands for Do Your Own Research. This is true when investing in any crypto, but never more so than when considering putting money into a crypto that hasn’t been launched.
Research everything about the coin including the names behind the project. And, don’t be afraid to walk away from a potential investment if you find some conflicting information. There are plenty of ICOs and presale opportunities launching every month, so you won’t miss out.