Every month dozens of new cryptocurrencies are released, and along with these new tokens and coins comes a number of initial coin offerings (ICO). The appetite among a wide group of investors for these opportunities has grown, even as cryptocurrencies took a beating in 2018. All of these factors combine to attract scammers. After all, if investors have shown that they are willing to put money into a highly speculative cryptocurrency, seem to be equally likely to invest in fraudulent tokens or ICO.

For the cryptocurrency investor looking to make the most of the plethora of new investment opportunities while staying safe from fraudulent ICOs and sketchy coins and tokens, the prospect can be daunting. Blockchain and cryptocurrency technology is developing at a fast pace, and even experienced investors can find it difficult to keep up with the terminology. While there is no guarantee that any cryptocurrency or blockchain related startup will be legitimate or successful, the steps outlined below can help you be as sure as possible that you are not falling for a scam.

meet the team

Perhaps the most important success factor for any ICO or cryptocurrency is the developers and management team behind the project. The cryptocurrency space is dominated by big names, with superstar developers like the founder of Ethereum Vitalik Buterin able to make or break new projects simply by having their names on a development team’s roster. For that reason, it is becoming more and more common for scammers to make up fake biographies and founders for their projects.

The best protection against this fraudulent tactic is to thoroughly research the individual members of a project team before investing. It’s a bad sign, for example, if you can’t find information about a particular developer or founder on LinkedIn or other social media outlets. Even if profiles exist, check to see if their activity seems to match the number of followers and likes they rack up. People who rarely interact with their followers and yet have thousands of fans may not be real.

Beyond determining if the development team is real, it’s important to make an effort to see if their qualifications are up to scratch. Do the founders have the experience they claim to have? Is it relevant to the current project at hand?

Pore ​​on the white paper

A white paper on cryptocurrencies or ICO is the fundamental document for that project. The whitepaper should set out the background, goals, strategy, concerns, and timeline for the implementation of any blockchain-related project. White papers can be incredibly revealing: companies that have a flashy website can reveal that they lack a fundamentally sound concept. On the other hand, a company with a website that contains misspellings may have a white paper that indicates a rock-solid concept and a carefully conceived implementation plan.

The first step in analyzing a technical document is to read it carefully. Check to see if the white paper also has supplemental resources, including financial models, legal concerns, SWOT analysis, and a roadmap for implementation.

Companies that do not offer white papers should be avoided at all costs. Still, it is possible for a fraudulent company to come up with a convincing whitepaper, as was the case with PlexCoin; this company managed to raise more than $15 million before the US Securities and Exchange Commission (SEC) stepped in to turn it off. A white paper should answer all the questions a potential investor might have about what sets this particular project apart from its competitors, how it intends to succeed, and the steps it will take to achieve its goals.

Watch the token sale

Any ICO will rely on a token or currency system to facilitate the crowdfunding process. Legitimate companies and efforts make the system itself and the progress of the token sale easy for potential investors to see. Look for the token sale figures as the ICO is ongoing. Better yet, look at the token sale over time to see how it’s progressing. If a company makes it difficult for anyone to chart the progress of their ICO, this is a huge red flag. Some fraudulent ICOs will hide the progress of their token sale under the guise of individual contribution addresses; this prevents potential investors from seeing exactly how much has been raised and how much time is left on the sale. In some cases, this could be an effort to create a sense of urgency among potential investors, even if there is no evidence of a successful sale at the same time.

How feasible is the project?

While it may seem obvious, the ICOs and cryptocurrencies with the greatest chance of success are those that have the foundational structure to outperform their competitors. Many launches, even highly publicized ones, fizzled out after initial interest faded. Your best chance of a successful investment depends on a company having a set of achievable and feasible goals. The company must have a compelling concept for now, but must also be able to bring that concept to execution in the short and long term alike.

Along with the issue of feasibility is the issue of transparency. Companies that have outstanding concepts and models are more likely than others to want to be as transparent as possible with the wider community. Look for companies that aim to keep potential investors up to date with regular, detailed progress reports on the company website or on social media. It’s also helpful to see if a company has a timeline of what has happened in the development process.

exercise caution

Even the most successful ICOs and cryptocurrencies are criticized for being fueled by speculative investment. The idea of ​​getting rich quickly with an investment in an attractive new project is tempting enough to attract experienced investors and beginners to areas of risk. Be mindful of caution as you look for new investment opportunities in the ICO and cryptocurrency spaces. Keep in mind that projects that sound too good to be true probably are. Take time to examine every detail and assume that the absence of a crucial piece of information may be an attempt to hide an unsound model or concept. Look to outside sources to verify the legitimacy of any project before making an investment, and always ask questions you can’t yet find the answers to. Cryptocurrency and ICO spaces offer tremendous opportunities for investors who have done their homework and are able to make sound investment decisions. They also present pitfalls, which can lead to huge amounts of money being lost to scams, fraud, or even legitimate businesses that are simply poorly designed and unlikely to succeed.