While Blockchain projects promise to be the new internet, some of them were outright scams. Bitcoin does a tremendous job in preventing double spending and making peer to peer payments a reality, but it also makes it almost impossible to track or return money lost to fraud.
And it is not just about scams – honest people can still fail to deliver if they are not properly prepared. As such, knowing which ICO projects to invest on is of crucial importance.
Disclaimer: the tips shared here should not be taken as investment advice. The aim of this article is mostly the technical parts, not financial advice.
What to examine
Does it solve a real problem?
The number one rule is that the blockchain project must solve a real-world problem, which requires blockchain as part of its solution.
- If it cannot be explained in simple terms, it will fail
- If it offers everything under the sun, it will fail
- If it’s on the blockchain just to be on the blockchain, it will fail
- If it already has a better solution, it will fail
For instance, consider VINChain – the moment I landed on their site it was evident for me that by tracking car information on the blockchain, they are offering an secure way to know the true condition of the car, mileage, accident history etc. which cannot be faked.
When the project actually solves a real-world problem, the staff and the developers have much higher incentive to actually deliver than exit scam.
Some projects claim to bring in wealth and fortune for the investors, even pointing out to scheduled pump and dump schemes. This is in contradiction with this rule – if the purpose of the project is only to create riches, it will fail. Remember: there is no such thing as a free lunch.
You should spend enough time in this part, to make sure there are no surprises. At the most basic level, document with lots of spelling errors, inconsistent language and copy paste from other places is most likely a sign of scam or negligent developers.
In one case, the whitepaper of a project claimed all funds it received should be considered “donations” and left some furious investors behind.
Any serious entrepreneur has an eye on their competition. It’s extremely rare that there is no competition – people must be doing something in absence of the blockchain product. Knowing the competition helps the Unique Selling Proposition stand out. It also shows they have done their homework, know the problems the users are facing and the way others have tried to solve the problem.
The team must have a solid background in the field they are addressing. No celebrities. No fake photos. Not “just” programming experience. Having experience in other startups is a plus. Also, you might want to double-check that the people introduced know about it too – there have been cases where people’s profiles have been misused.
The Giza scam ICO can be mentioned as one of these projects with fake or misused identities. On the other hand, take Nexo as an example: it is backed by Credissimo, which by the time of the ICO, had been active in Fintech for 10 years. It is a very solid project.
After the SEC crackdowns, companies are either paying more attention to the legal aspect of their papers (to make sure they are not rendered as securities) or exiting the US and prohibiting US citizens from participating. The former is a good sign, which makes the project much more dependable.