Everybody wants to get rich. whether it be quickly or steadily, to afford a lavish lifestyle, or simply to be free to enjoy their passions and pursuits. But what happens, when the unexpected hits and all of the eggs you placed in the basket are gone?
As far as investment opportunities go for the average non-professional investor, cryptocurrencies have provided a modern easy-access gateway to the world of investment opportunities. For those that missed the humble beginnings of Warren Buffet's Berkshire Hathaway, the Facebook IPO in 2012, or a friend investing in "some kind of fruit company" on your behalf (like Tom Hank's Forrest Gump) - Initial Coin Offerings provide a window of opportunity to invest in future success.
For those that keep up with cryptocurrency current affairs, and even the casual entry-ist spectators that don't - almost everyone has probably heard of a promising ICO project (raising several hundred million in funding rounds) that suddenly or gradually revealed itself to be a fraud. You may have lost money, or you may be vary of losing money under such circumstances. This article provides several tips to help analyse the potential target of your money.
Tip 1 - General Research
If you simply jump on the hype-train . . . you have no real clue about your destination. The more you understand the fundamentals behind the company, project, team, or even the idea behind the investment - the more informed you are to make smarter decisions. If you read one front page news article and invest solely based on that, then you haven't done your due diligence properly. By improving your knowledge, you can at least have an idea of what stations the train might stop at, as opposed to simply praying and hoping it reaches that one destination.
Tip 2 - Does it make sense?
Keeping this frame of mind in your decision making can help you avoid the ICO honeypot trap! Often a blockchain start-up has very little to go on. In some instances all the information they provide publicly is a website or a whitepaper. Scrutinize the information provided, remove the marketing keywords, and catchy sales gimmicks and ask whether you understand (i) what the company wants to achieve (ii) what their technology does or aims to do. If you read through the information and you don't have a clear picture of what their product or vision is, maybe question whether this a sound investment in line with your risk appetite.
Tip 3 - Simple Verification - Identity
Who is the founder? Who are the developers? Who are the advisers? Who is in the team? Many cryptocurrency start-ups that aspire to go on to become professional companies will detail who they are and some basic credentials. Simple verification can come in the form of LinkedIn profiles that actually work when you click on the hyper-link, and an established profile with more than just double digit connections. Also, does it make sense? The founder is based in Mumbai, the lead developer resides in Papua New Guinea, and the chief financial officer is working from Taiwan - what an interconnected world right?!
Tip 4 - Jurisdictional Awareness
Always be skeptical of the location of the business, or a substantial proportion of it's activities or personnel. It generally should raise an eyebrow if the company behind an ICO is based in places such as Cuba, Morocco, or Namibia for example. Not that entrepreneurs and tech innovators aren't born out of difficult conditions, but it may be doubtful that these locations would have large scale funding to be able to develop technology research. In this year alone, India is approaching double-digits for public knowledge coin-investment scams and the number of frauds being perpetuated is only growing bigger.
Tip 5 - Independent Sources of News
As simple as it may be, a lot of one-off blogs and stand-alone articles written about "the next biggest thing" may just be authored by someone connected to the company or an anonymous account seeking to benefit from being on the inside of the business pyramid. Check the wider industry news websites, is there any journalistic chatter about the coin or token that is not obviously bot-generated? Are there industry commentators talking about this project? If there isn't - be vary of this investment opportunity.
Tip 6 - Connections to other projects
This is a two-way street. One lane can help ease your doubts and help legitimize the project, but the other lane may be paved so you feel comfortable walking on the fool's gold path. General research could lead you to discovering that the new project or ICO was borne out of another project; with this information communicated via websites or through the companies' whitepaper. Always question the sources! if you can find a legitimate link between your project and an established market player then you may have struck gold. Equally, fraudsters might disseminate this eye-catching information to legitimize their scam. Until you feel comfortable that several independent sources corroborate the information, it may be better to assume the link isn't real, and that you are better off investing your money somewhere else.
Tip 7 - Limiting Your Exposure
This is entirely dependent on your personal risk appetite, how much money you have, and how much money you have to waste. If the project sounds promising, and you just have to have a piece of it - then by all means invest. But by reducing the stake you have, you minimize the down-sides of adverse news. The argument could be made for larger investments, leading to larger rewards; that presumption rests on the investment being reasonable in the first place.
Hopefully this article helps people to adjust or compliment their individual risk-profiling techniques in small and simple ways. The scams can not always be detected early, and the perfect bank jobs are always being created; but by implementing a questioning mindset you will be better placed to avoid becoming victim to fraud.