I’m not sure if you saw the news recently, but ICOs or Initial Coin Offerings have surpassed VC funding for the past two months. Which is kind of crazy when you think about it since almost no one knows what an ICO is, let alone how to take advantage of this.
And when you have high dollar amounts and low knowledge in an industry, you’re bound to see a lot of scams and people being taken advantage of.
And the ICO market is RIFE with these schemes. For instance, you have a lot of groups out there that put up a website and then fabricate an executive team, whitepaper, and business plan. Then they list their ICO and rake in hundreds of thousands of dollars or even millions in cryptocurrency in a very short amount of time, then disappear into the ether. And there’s little to no recourse for the investors.
Dean Takahashi recently interviewed Austin Hill and discussed this very thing.
But at the same time, there are legitimate companies that are using ICO as a vehicle to fund their companies on the blockchain and they do provide the opportunity to experience a significant return on your investment.
But how can the casual cryptocurrency investor take advantage of ICOs and avoid getting burned? Unfortunately there’s no 100% guarantee of protecting your investments, but if you’re smart and do your homework, you’ll increase the chance that you are putting your hard earned cryptocurrency into a legitimate venture.
First, What is An ICO?
Think of them as an IPO for the blockchain. But the term itself is a bit of a misnomer since a lot of the companies performing ICO’s aren’t offering coins, but rather tokens. And tokens and coins are very different things.
Coins are a way of transferring monetary value. The most popular coin that almost everyone has heard about is Bitcoin. Tokens on the other hand, can store complex and multifaceted data streams that can be used for endless functionality.
Not Just For Currencies
Many of the new companies that are holding ICOs are not currencies and are instead technology companies that will be built on the blockchain. So, they can’t be judged solely on their monetary value, but rather they need to be evaluated based on their business model and potential solution.
For instance, here are several companies that are using ICOs to raise capital. You’ll notice that only one of them is a currency for the blockchain.
This is the second Cryptocurrency for this group. Their first one was Minereum, the first self-mining smart contract. Artemine is continuing the evolution of smart contract mining technology and will be launched as an ICO on September 14. It also brings a major technical break through by introducing Public Mining, which allows anyone to mine coins manually without mining equipment.
One of the most important aspects of this group is that they already have a service running that allows anyone to create their cryptocurrency for only 10 MNE (Around $40 at press time).
With Artemine they plan to go even further by allowing anyone to create their ICO smart contract with the ICO Factory Service, which the team says, will facilitate anyone to create their own cryptocurrency and ICO - This service will be exclusive to Artemine holders.
Additionally, the team intends to create a new Market by allowing users to sell their Genesis Addresses in a secure and decentralized way via the blockchain, without the need of a middle man.
Soma is a new consumer to consumer platform that is designed to revolutionize second-hand commerce. Soma will utilize blockchain technology to leverage social capital. The Soma Reward System incentivizes users of the platform to engaging in beneficial collaboration by ensuring that every value added action is rewarded accordingly.
They’ve noticed that social interactions and social media affect purchases and trade in a massive way. But for the most part, social users are never remunerated for their actions. Yes, “social influencers” get paid to promote products, but what about the average user who promotes and shares a product because they love it. Now, they can be rewarded through the Soma platform.
Jukka Hilmola, the Co-Founder of Soma explains, “our purpose is to create a trading platform that supports social behavior and ensures that users who provide value are compensated accordingly.”
Wolk is a decentralized data exchange. Their mission is to create an open data sharing system that works for everyone.
Currently the world’s experiences are decided by a small number of large companies, namely Facebook, Google, and Amazon, leaving most users with little power. Wolk’s decentralized data exchange allows power to be shifted to smaller companies. For instance, 25 years ago, companies had the ability to spin up a server and start their own internet business. By utilizing the blockchain, Wolk intends to give that ability back to small companies by allowing them to store and access their data on a decentralized exchange.
“The joke in the industry is that Facebook and Google earn $11 out of every $10 in digital advertising spend,” explains Sourabh Niyogi, CEO of Wolk. “And they can do this largely because of their immense and increasing data advantage. Wolk is putting innovation and data back into the hands of small businesses.”
With basically everyone threatened by cyber attacks, password breaches, identity theft and IoT security risks, the Authoreon solutions are of great importance to those, who want to protect themselves, their families and businesses against enormous security risks and, in the end, massive financial losses. The 2017 Identity Fraud Study, released by Javelin Strategy & Research, found that in the past six years identity thieves have stolen over $107 billion. Authoreon aims to reduce those numbers dramatically by introducing its unique and proprietary Synapse and Access Lock layers on top of the Ethereum blockchain which enables its customers to secure their privacy, identity and ownership against any cyber crimes. They’re looking to become the security layer to the blockchain.
Presearch is building an open, transparent search engine that pays searchers, developers and promoters for their usage and contribution to the platform in Presearch Tokens - a new cryptocurrency. In a world where one company controls more than 77% of all searches, a new decentralized search engine that is open, transparent and community-driven is a breath of fresh air for anyone who doesn’t trust big business.
Presearch envisions a platform and framework that enables an array of experts to plug their algorithms, interfaces and curated content into the engine in return for a share of traffic and revenue. Users will be able to decide which results are best for them, and will encourage active personalization. For example, if a user wants to support local businesses, they’ll be able to change their settings to favor smaller local businesses over big box stores.
No doubt this is a lofty goal, but one that could have massive ramifications if it were successful.
What To Look For
To help you avoid being taken advantage of, I’ve put together some pointers to help you when you’re doing your homework on ICOs.
First, you’ll want to look at the company as in depth as possible. This means going and reading their whitepaper, checking into the founding members. Go check out their LinkedIn pages. See how much history they have in the space. Check to see if their digital footprint is greater than just their website.
And if you can find enough information to make you feel comfortable, then move on to the next step.
Now you’ll want to give a taste test to their business model and the way they’ll be using their tokens and if there is any validity in what they’re doing. This step is a little more subjective than the first step because you have to use your gut instincts and deduce whether you think they have a chance of succeeding.
For instance, if someone is launching an ICO for a fleet of ice cream trucks that will use the blockchain to discover where the highest concentration of ice cream lovers reside, then they’ll sell that ice cream for their tokens. And their tokens will derive their value based on how many people want to use them to purchase ice cream. If this were the model I’d just studied, I’d take a hard pass. But hey, that’s just me.
But realistically anyone with some business sense would be able to identify this as a flawed system that is trying to create an artificial economy where none is desired.
And that’s the kind of stuff you have to look out for.
Third, you’ll want to see if they’re just a copycat of another company that’s already doing this and doing it better. Again, this is going to require you to put on your detective hat and look for similar companies and then check them against the group you’re considering. Often times you’ll find companies that have similar business plans of other blockchain companies. And that in and of itself isn’t a bad thing. But make sure the technology is sound and that they actually have a chance of improving upon the idea.
But if you also notice that the business plan or premise is a carbon copy of another group, I’d consider that a red flag since a lot of groups that are taking advantage of ICOs are just copying someone that came before them and looking to dupe investors into a similar idea.
Fourth, you’ll want to consider whether the value of the token at the time of ICO is worth it. Do you think that the token has a chance of reaching those values on the open market? Do you think they’re going to saturate the market with too many tokens? Are there really any incentives to use their tokens?
And that last question is a critical question to ask. You might find a great company with an amazing idea and an amazing technology. But they’ve just duct-taped the concept of a token onto the side of their business model and it doesn’t make much sense. In these situations, the tokens are going to have an uphill battle to gaining value and are less likely to provide a return.
So, if you can answer all of these questions to your liking, then you’ve done a significant amount of work to reducing your risk.