Before you let your attention drown in the buzz surrounding cryptocurrency and blockchains, it is important you arm yourself with a cautious attitude whenever approaching a new investment. Like any other vehicle in finance, investing in cryptocurrencies is inherently risky. Bitcoins and altcoins have shown to be extremely volatile. There are no guarantees in the space and, although crypto-enthusiasts are able to form an optimistic viewpoint of the future, there is lots of risk associated with any investment.
That being said, there are lots of exciting technologies and projects being built within the space. As an investor, it is your job to find the needles in this ever evolving haystack of token offerings. Learning to filter the signal from the noise in the blockchain space can be really tricky, as it can be hard to know who to really trust and which projects to go all in on.
While there are no prescriptive recipes you can follow that guarantee a successful investment, there are some heuristics you can use to be sure you are separating the “spam” from the successes.
Here are 3 tips that help you pick an ICO winner from the crowd of offerings:
1. Team
Because of all the media attention and “get rich quick stories,” the crypto world has attracted an abundance of spam and junk. One of the easiest ways to quickly rule out a token offering is to find a company that does not advertise or publicize who their employees or founders are. This is a huge red flag for potential investors, as it implies the founders of the project/offering do not want people knowing information about them.
A great place to start the exploration of a token offering is to head over to the “about” page of the project’s website. There, you will likely find a rundown of the team — the who, what, and why they are building the company. The best projects are generally built by the best people, who are backed by years of industry experience or proof of their ability to execute on projects over time. You are looking for people with public track records of success. Scammers tend to hide their pasts or display lots of fake information, which is normally pretty easy to spot.
One team I was immediately impressed with was Datum, a global data exchange built on Ethereum that relies on the DAT token to provide secure data trading. They feature a directory of all of their employees, directly on the homepage, and also link to each employee’s work history and social profiles. In addition, they demonstrate their “over 100 years of experience building large scale data systems” with dozens of specific details and examples from prior work experience.
2. Community
Decentralized applications, also known as Dapps, are built with a community of backers in mind. One “risk mitigated” method of getting involved with an ICO is to simply start poking around the community before investing anything. It is a bad sign if you do not see much social proof with the project — meaning there is not a lot of public support or conversation around what the team is building. Alternatively, if you find there to be an active and engaged community around a project, there is a good chance the token has, at the least, managed to spark the interest of some people.
While that is not necessarily enough validation to warrant an investment, active blockchain and crypto community groups give you an opportunity to engage with others that are deeply familiar with the project. There, you can ask questions, contribute, and learn more about the project.
3. Addressable Market / Business Viability
“Just because you can build something, does not mean you should.”
While it seems obvious, there are many teams out there, in both the blockchain community as well as the technology world as a whole, who optimize for applying solutions to problems, rather than the other way around. Because of that, there are lots of companies building truly incredible technologies without solving any real problems for, one day, paying customers. Blockchain applications, in particular, are susceptible to this problem — as engineers are eager to take on many of the exciting questions around protocols and decentralization before thinking about the business value of the idea.
At their core, these applications are businesses. And in remembering that you have to realize that, if you want to receive any return on your investment, these projects have to have real world business applications for what they are advertising. While Dapps come with their own unique obstacles and challenges, the core problem is not unique — they have to find a way to build something that people want.
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Thanks for reading!