These past couple of years have seen a meteoric rise of companies issuing their own cryptocurrencies to kickstart ambitious projects and fund their businesses. Venture capital fund Fabric Ventures and cryptocurrency data provider TokenData stated in their “State of the Token Market” report that over US$5.6 billion has been raised in 2017 alone.
It’s exciting times, no doubt. But even in today’s maddening rush in this roaring blockchain age, you should never throw caution to the wind. There have been plenty of scam ICOs and incidences of investors, both big and small, losing funds through malicious attacks like hacking, phishing, and other deceptive means.
To help you stay safe when investing in ICOs, we’ve pulled together a short list of things you should consider when participating in ICOs. It’s by no means exhaustive, but at least a small start to staying safe:
1. Guard your key with your life
Protect the wallet with a strong password (of at least 16 characters) with letters, numbers, and special characters that are uniquely combined. Make sure you store it somewhere safe where you won’t lose it, but not where anyone can easily gain access to it.
Remember, if you lose access to your wallet, you lose all your funds and there’s no reset function to restore your lost password. Guard your private keys and password with your life and never give it out to anyone. To keep your cryptocurrency away from hackers or phishers, store it in a hard wallet like a Trezor or Ledger Nano S.
2. Avoid fake wallets and scam ICOs
One of the most common pitfalls in ICO investment is the lack of doing proper due diligence. It often happens when investors don’t research the background of the team and company behind the ICO or transfer their funds to duplicated wallets or ICO websites.
Double and triple check that you’re on the official site and make sure you’re sending funds to the correct ICO address. Search for their email addresses and make sure they’re in working order. Find and browse through their social media accounts (especially Telegram and Bitcointalk) to gauge if they’re professionally run.
3. Evaluate the project team thoroughly
No matter how solid a project may seem, the project’s success often hinges on the people behind it – the founder and the project team, including its advisors and developers. Are they anonymous or can you find their actual profiles on social media, like on Linkedin? Do they have proof of concept and come across as technically experienced?
Their expertise and past successes (either through an actual product on the market or successful fundraising) should supersede a fancy website, glitzy graphics, and marketing-focused copywriting.
4. Study the whitepaper, from front to back, and again
It might be tedious but it’s highly advisable to read every page. Dive deep into it and familiarise yourself with the information and the way it’s presented in the whitepaper. It should contain all the vital information regarding the project, such as:
- Backgrounds of the team members and advisors
- Project roadmap and timeline
- Tokenomics (how the funds will be used upon completion of the ICO)
If there’s anything suspicious or that you’re unsure of, get in touch directly with the team and ask detailed questions.
5. Read what others say about the project online
Go to popular forums like Bitcointalk and Reddit. Look at the chatter and find conversations or comments regarding the ICO. Legitimate projects often have their own developers actively participating in discussions either in large crypto forums or on Telegram groups.
Read reviews of the project and talk to other people who have participated in token sales before, especially one that’s similar in nature to the one you are planning to participate in.
The ICO market has been relatively quiet in the second half of 2018 as cryptocurrencies seem to be going through a corrective period. It’s clear that there are fewer people investing in ICOs today compared to in 2016 to 2017 (although surprisingly more institutional investors have recently started to slowly pour into the crypto space).
There is also a growing number of more quality, legitimate blockchain projects. And it’s clear that there are fewer scam projects now compared to before. Investors have generally become more aware and careful when investing.
Remember, before you part with your hard-earned cryptocurrencies to invest in an ICO of your choice, do your due diligence and follow these steps laid out in this article to stay safe when investing in an ICO.