What You Need to Pay Attention to When Investing in ICO
Before investing in ICO projects, it is first necessary to investigate the positive and negative effects of the projects you will invest in.
While some initiatives have real-life and promising projects, do not forget that some of the projects are fraudulent.
ICOs are at risk because there is no return guarantee. In fact, it is not much different from regular startups. Given the failure rates of traditional startups, it is estimated to be around 90 percent, making risk assessment is easier in investments in ICOs.
Why are not the attempts successful? No developing industry would like to accept failure. The teams can be experienced, financed or even the best-intentioned company in the world, but companies also may not be able to attract customers. In addition, unfortunately, we do not know how the blockchain will affect the world, which protocols will be effective in this change, and how fast technology will come into the mainstream condition. Because these are components of a highly speculative investment.
Are ICOs legal?
Due to the large number of malicious ICOs, while global regulations are being implemented, rigid policy implementations regarding the cryptocurrency market have been adopted. The frequent increase of scams in applications is destroying the crypto market and undermining investors’ confidence.
The biggest difference in comparing ICOs with IPOs is that public offerings are heavily regulated. Numerous regulatory compliance, high volume of paperwork and continuous controls in business activities are part of the IPO world. This situation may not be too much of an issue for an ICO launch when six people under one roof are unable to start an IPO process.
Most governments do not accept this fundraising model. The reason is that governments have the obligation to protect their citizens and want to protect them from fraud. Despite the fact that there are more legitimate ICOs than scams, there is a need for legal regulation to implement ICOs.
Another problem regarding this is regulatory bodies cannot classify ICOs. Governments around the world are trying to give cryptocurrencies and ICOs legal status. As a result of this, it is possible to accept many new laws and regulations in the field of cryptography.
Do project owners take our money and run away?
Although it varies from country to country, the guarantees provided by the government are very few. However, many of the companies that launch ICO campaigns are restricting themselves to provide sufficient trust and transparency to those who contribute to the project.
The first ICOs were improvised with few rules or restrictions by nature. However, soon the blockchain owners realized that they were in charge of the regulation of conditions to guarantee sufficient contribution and trust of the community since there has been no governmental regulation.
This led to a series of restrictions. Some of these restrictions are;
• To keep the contributions of the members of the community in the escrow wallets. The owners of funds have to use private passwords to access the funds stored in these wallets. Usually one of these passwords belongs to a trusted third party that is not included in the project.
• Establishing a legal entity for the company and documenting a set of terms and conditions of the ICO.
• As a good campaign example, you can look at the ICO example of Humaniq. A detailed White Paper and roadmap, clearly identified objectives regarding the project, independent expert comments and open identities of developers. They all point to a legitimate campaign.
How do we know when we see an ICO fraud?
There are some clues that point to an ICO being established for fraud. Anonymous developers, non-existent escrow wallets and unclear and unrealistic goals are the most obvious ones.
In the past few years, the cryptocurrency community has had to deal with some ICO activities formed for fraud. There are some negative signs that will allow you to avoid companies that are widely seen and potentially dangerous.
The developers of the project are anonymous and are not recognized by anyone in the community. If the people behind the ICO have not revealed their identity, they will feel more confident when they attempt to perform fraudulent activities. If all the contributions made to the project are collected in the owners of the project, they will see no harm in taking the money.
Unrealistic and unclear goals: If the project has not a clear-cut, realistic roadmap, it shows that the people who created the project do not know what they are doing.
No transparency: Today, it is an industry standard in the world of cryptography to clearly show the phases of work in progress. If developers do not show parts from the code they write, if they do not publish the demos of products, if they do not provide the image or any evidence of the improvements they have made, it will mean that they do not have anything to show.
If you encounter any of the above items in an ICO project, it will be best for you to avoid that project.
But remember that investing in a properly researched ICO has many positive outcomes. What are the positive effects of successful ICO projects?
Positive effects of ICOs on cryptocurrency
The largest capital that ICOs can draw to the crypto area is to support blockchain technology and the development of the necessary infrastructure. In addition, each ICO makes its own marketing and targets different masses. For this reason, it reaches a globally dispersed and different demographic pool. In fact, all ICOs market blockchain technology and cryptocurrencies. Launching projects with astonishing potential will lead to the mass adoption of projects to be marketed in the future.