Disclaimer: This ICO and cryptocurrency buyer checklist is not exhaustive. When considering whether to participate in an ICO or deciding which cryptocurrencies to invest in 2018, take care and conduct extensive research. This may or may not require you to ask further questions that go beyond the scope of this post.
ICO and crypto mania
2017 was without a doubt the year of the ICO. Good, bad and downright terrible projects were launched. Many achieved jaw-dropping levels of funding and the ICO/cryptocurrency space reached peak hype. But as we enter 2018, elements of calm appear to have spread through the crypto world.
Of course, that doesn’t mean the end of ICOs is near. ICOs, as a fundraising mechanism, are only just taking off. The next generation will be more innovative, compliant and serve real-world use cases.
This means buyers should be ready to contribute to more mature projects that could provide a substantial return, not just hype and promises.
Understandably, buyers will be eager to get involved, but it will continue to be challenging to decipher which blockchain projects and cryptocurrencies have the best chance of success. Buyers will need to conduct thorough research and analysis prior to making any commitment.
A big part of this will involve asking the right questions and getting the right answers to those questions. An ICO and cryptocurrency buyer checklist is a must-have tool.
Making informed decisions
Making informed decisions is all about asking the right questions. The answers to the questions listed below can usually be found on a project’s website, social channels, blogs, whitepapers, terms and conditions, etc, or through general online searching. It may, however, also be necessary to contact a project directly.
As a general guide, if a project cannot explain what specific problem they are solving, how they are solving it and what their business model is, don’t participate. A worthy and transparent project will be able to answer these questions with relative ease.
ICO and cryptocurrency investor checklist
SEC Chairman Jay Clayton recently released a list of questions to help ICO and cryptocurrency buyers make more informed decisions. In the knowledge that few people follow or have the time to search through the trove of information released by the SEC, the questions have been listed below.
1. Who exactly am I contracting with?
-Who is issuing and sponsoring the product, what are their backgrounds, and have they provided a full and complete description of the product? Do they have a clear written business plan that I understand?
-Who is promoting or marketing the product, what are their backgrounds, and are they licensed to sell the product? Have they been paid to promote the product?
-Where is the enterprise located?
2. Where is my money going and what will it be used for? Is my money going to be used to “cash out” others?
3. What specific rights come with my investment?
4. Is there trading data? If so, is there some way to verify it?
5. How, when, and at what cost can I sell my investment? For example, do I have a right to give the token or coin back to the company or to receive a refund? Can I resell the coin or token, and if so, are there any limitations on my ability to resell?
6. If a digital wallet is involved, what happens if I lose the key? Will I still have access to my investment?
7. If a blockchain is used, is the blockchain open and public? Has the code been published, and has there been an independent cybersecurity audit?
8. Has the offering been structured to comply with the securities laws and, if not, what implications will that have for the stability of the enterprise and the value of my investment?
9. What legal protections may or may not be available in the event of fraud, a hack, malware, or a downturn in business prospects? Who will be responsible for refunding my investment if something goes wrong?
10. If I do have legal rights, can I effectively enforce them and will there be adequate funds to compensate me if my rights are violated?
Consider these questions as well –
Are the trading markets fair? Can prices on those markets be manipulated? Can I sell when I want to?
Are there substantial risks of theft or loss, including from hacking?
If you like this ICO and cryptocurrency buyer checklist and are hungry for more information, check out this step by step guide on how to invest in an ICO and buy tokens.
Anthony is the head of content and research at Intrepid Ventures. He has spent the past several years researching and analyzing technologies and working with a diverse mix of blockchain companies to help them gain insight and develop authoritative content.
Also published on Medium.