ICO an abbreviation for Initial Coin Offering refers to the hot and new crowdfunding mechanism allowing entrepreneurs with new projects to sell their underlying cryptocurrency tokens in exchange for ether or bitcoin. Start-ups are increasingly using this new fundraising mechanism to bypass the highly regulated and rigorous process of raising capital from venture capitalists or banks because the ICO process is unregulated.
A lot goes into successfully launching an ICO including writing an ICO whitepaper, marketing, coin and technology development as well as public relations of the ICO activity.
The whitepaper is the gateway for investors who want to understand the nitty gritty of a project they may have an interest to invest in. ICO whitepaper therefore can be one of the ways investors scrutinize whether an ICO is legit or a scam.
An ICO whitepaper should articulate and communicate whether a project is longterm or short term oriented through the business vision. Investigating the going concern of a project as an investor you should analyze if the project you are about to invest into has a well defined roadmap. The roadmap will highly borrow from the project’s unique selling point and this should be well communicated in the solution description among the initial pages of the whitepaper.
Conducting a background check on an ICO project team members is essential to identify legitimacy of an ICO. Check if team members have a strong reputation and track record in the roles they are serving in the project and an understanding of the project’s industry. For example, a red flag in a project would be launching an ICO sourcing for funds to finance a decentralized insurance concept yet team members do not have an understanding, experience or knowledge of the conventional insurance industry.
Focus and language used in the whitepaper
Upon reading the ICO whitepaper what is the general feeling about the project? In most cases one would exhibit either of the two emotion namely fear of missing out (FOMO) or excitement say enthusiasm of the proposed solution and must be practical or technology application within an industry.
Lots of scam ICOs will invest to awaken your “fear of losing out” emotion illustrated by huge returns for instance with token appreciation if going in as an investor or unreliable incentive plan to use the platform for users. Just understand, legit ICOs will invest in communicating about their idea via USPs, technology enthusiasm and problem to solution approach.
Analyze the token economics: the general model of how the crypto will work, its generation, mining process, etc as well token parameters such as token supply, hard cap, softcap, funds allocation.
Roadmap: is it realistic?
In conclusion, a well written ICO whitepaper is key to kick-starting successful ICO launch and financing of underlying business project. However, when writing such ICO whitepapers we are keen to evaluate whether an ICO is legit or a scam just for the purpose of bolstering transparency and our reputation in the industry.