Blockchain’s smart contracts gave developers the ability to design their own currency. As a result, startups were free to commence their initial coin offerings (ICOs) and token sales as their main sources of funding. For the majority of the year, white-label ICO platforms have already been the talk of tech and entrepreneurship.
On the one hand, ICOs are a quick and effective tool for businesses to raise money. Unlike business loans, ICOs are also free from the burden of deadlines and interest. On the other hand, authorities and industry professionals advise caution when it comes to ICOs.
However, blockchain is showing signs of being a very disruptive technology. There will undoubtedly be a blockchain startup ICO with the potential to generate enormous profits. So, how do investors recognize and choose the best ICO? Here are six things to remember.
1. Know the people behind them
It is essential to understand the makeup of the teams and the companies behind ICOs. The majority of the businesses are recently formed. Reviewing profiles and looking for news and mentions of their earlier work is possible.
Team members must have proven track records and experience in the sector they aim to disrupt, as well as skills in their specific professions. Lack of experience can be a warning sign, such as when a team lacks a CTO with substantial experience working on prior cryptocurrency initiatives.
2. Go for disruptive concepts
Offering something special and worthwhile still holds true. Many firms have fallen into the me-too trap, where they merely try to be a better, cheaper, faster version of an already existing service, as a result of how simple it is to hold ICOs. Chances are, these firms will just compete rather than innovate unless they provide something special.
They must provide a good or service that meets a genuine demand and use cutting-edge techniques. Keep an eye out for ideas that genuinely aim to use the strengths of blockchain to disrupt an industry’s existing quo.
3. Understand the target market
It is important to put the company, its technology, and its product or service in the context of its target market. They will inevitably be subjected to the market and regulatory pressures of their target industries, so knowing the environment should give you an idea of what challenges and opportunities these ventures face.
A healthcare blockchain service, for instance, might have a lot of potential, especially in light of recent legislation requiring contemporary tracking & record-keeping systems from medication manufacturers—another area where blockchain can be helpful. However, established, huge firms are also entering this market, so startups will have competition. Is the idea or technology novel enough to succeed?
4. Evaluate the technology
It is crucial to consider the target market in relation to the business, its technology, and its product or service. Knowing the environment should help you understand the chances and constraints these enterprises face because they will undoubtedly be susceptible to the market and regulatory pressures of their target sectors.
Such proofs of concept are essential for demonstrating the expertise of these ventures. Investors should have the opportunity to evaluate the technology to see whether its intended consumers would find it useful. Technology-based initial coin offerings (ICOs) have a better probability of advancing toward commercial viability than any of those that have not yet begun development.
5. Nitpick the white paper
The company’s sales presentation to potential investors is a white paper. The specifics of how their solutions operate and the need areas they will be addressing can be learned by nitpicking the white paper.
The caliber of the content also demonstrates how well the team did its research. Citing sensationalist media instead of scholarly works and subject-matter authorities may raise questions about the veracity of the information supplied.
6. Know what the coins are for
The currencies or tokens are essential to ICOs. These coins frequently serve various purposes with the platform or ecosystem in addition to serving as a kind of security.
Remember that not all commodities, whether virtual or physical, may be suitable for tokenization and electronic trading. The venture and the value of its token will ultimately be impacted if the market isn’t ready.
Be aware that not all commodities, whether virtual or physical, may be suitable for tokenization and digital trading like bitcoin. The venture as well as the value of its token will ultimately be impacted if the market isn’t ready.
Bonus: Determine your level of risk-taking
It’s crucial for investors to assess their risk tolerance before pursuing any investment opportunity. Many of these firms are in their very early phases and aren’t yet operational, whereas initial public offerings where businesses have often been established for several years, which implies a lot of risk for investors. Investors could potentially lose money when a project doesn’t work out. Additionally, ICO stats aren’t a reliable predictor of the venture’s success. Some businesses that have collected substantial sums of money are currently being examined for their development—or lack thereof—since their ICOs. ICO investments carry a high level of risk and profit. Before taking part in one, it’s critical to understand how much you’re willing to risk and maybe lose.
ICOs can always be approached similarly to any other investment opportunity. An ICO is still a good option for businesses, so long as they are registered in a jurisdiction that permits them and all rules are followed. An ICO allows investors to participate as early stakeholders in interesting projects. Even while not all cryptocurrencies will rise to the level of the top coins in value, choosing the appropriate one to invest in can yield enormous rewards.
To determine whether a company has the potential to flourish and generate a profit for its investors, it is important to conduct due diligence and comprehend the market, its competitors, and their solutions.