Initial coin offerings have become the norm when companies want to raise money to fund their projects. For investors, it’s an opportunity to get tokens that can then be sold later on at a profit. With hundreds of ICOs coming up every other year, it is critical that an investor knows what to do once they decide to invest.
How to Read a Whitepaper?
If you are intending to invest in an ICO then you know one of the first things to do is read the project’s whitepaper. Knowing that there is a whitepaper isn’t enough for an investor; knowing what to look for or how to read it is what matters. This article will guide you on how to do it.
So, what’s a whitepaper?
A whitepaper is a document prepared by a company or project team whose content explain to the readers how the company intends to handle a given project that appears complex. The main reason is to assist readers to understand the project, get the solutions or make decisions.
Take note of the words “to understand the project” and “make decisions”- this is the core business of reading the whitepaper.
The ICO whitepaper will give you all the information concerning:
The project and why it is necessary
Issues or problems the project seeks to address
Current solutions and how the ICO seeks to improve them.
Project description and roadmap
Technical details of the project.
The project team and their expertise
The ICO funding (token sale)
Now, how do you read the whitepaper so as to get the best out of it for the purpose of making investment decisions?
Examine the introduction – it will tell you about the project and why it is necessary. Read this carefully to get the context of the ICO ideas. The introduction will put forward the problem and its background in general. Do not skip this part, as it is here that the project’s appeal is established and credibility defined.
The product – to understand an ICO means you need to understand their product. When reading an ICOs whitepaper, find out the following:
Current solutions and how the ICO seeks to improve them
Project description details
Technical details of the project
I will tell you how to do it, but generally, knowing the product entails getting the above four key areas.
The project team and their expertise – this essentially means you need to know who is behind the project. Research them and establish whether they have the expertise necessary for the project.
The ICO funding (token sale) – this section should be where you get information on the ICOs funding details. I’ll talk about this later on in this article, but essentially, you are looking at how much is required and how it should be raised.
The whitepaper will conclude by giving a roadmap and may include a call to action message. If you read the whitepaper well, this call should not be difficult to make.
When looking to invest in an Ico, getting to know the team should involve more than you knowing their names and checking out their LinkedIn or Facebook accounts.
It is important to undertake a thorough research on each of the team members to find out more that could shed light on their capability to deliver what the project promises.
Before you go on to invest in that ICO, ask these questions about the team.
Who is on the management team and can they lead the rest f the team to successful project implementation?
We acknowledge that the team works together with a goal of delivering the project. However, a team that lacks great leadership personalities often ends up failing.
So, when researching the team, take time to find out a little more about this group. Get to know what experience they have as project leaders (they usually have links to Linkedin profiles). Did the project on which the individual took a leadership role succeed?
Are they known for their accountability? Or did any of them face questions about fraudulent activities? Suspicious pasts are clear red flags for you. Finding more about this part of the team will give you the confidence to get going with the investment or not.
Do the team members exhibit expertise in the ICOs business niche?
An ICO project whose team members have the experience required to see the project off is better that one whose members do not have any experience. Look at the portfolio of each member to see whether their expertise relates to the ICOs intended niche. If not, it’s a signal the team may not deliver.
Is the team list complete with all the necessary experts?
Once you have checked out and researched the people indicated as the ICO team, it’s time you asked yourself whether what is presented is all there is to be for the team. The team could be missing some very vital members. Find out whether the ICO leadership has plans to fill such roles. Go to the ICO project’s career/jobs page and find out if the advertised posts relate to the missing roles. What you should be interested in are key roles like those of project developers, engineers, designers, and marketers.
Who are the advisors?
Although this may not ultimately tell you about how/whether the ICO will succeed, it is always good to know who makes up the advisory team. Find out how the advisors relate to the project team. Look out for interviews they give, social media posts and how they generally view the ICO. Such advisors can have a positive impact on the project’s token value at the ICO or later when the token starts trading.
What is the product?
This is one of the main considerations to make. You should strive to understand the product being offered by the ICO.
Well, here is what you need to know about the product before you decide to put your bucks on it.
Product Definition – a simple definition of the product is the first thing. This is where the company explains the issues or problems the project seeks to address. Take note of what the project refers to as issues or problems they wish to solve. Can you picture the issue and relate them to the current market? Try to find out business-related issues that can be addressed in the future. Also, examine how the project’s technology is explained in relation to the issues pointed out. An example in mind here is the Crypterium that is in the Fintech niche. The ICO defines its project as a mobile crypto bank that will have a credit sub-token.
Current solutions and how the ICO seeks to improve them – as a prospective investor, once you understand current problems, you need to get to know of the current solutions in the market. Why are they ineffective and need to be improved? Look at what the ICO says about their competitors’ solutions and technological failures; here you are looking for reasons why what is there isn’t good enough and the ICO could have a better idea.
Project description details – in this section, your attention should be on exactly what the project is. You should be asking: What is this ICO? Take a keen interest in how the ICO proposes to be unique in what they will try to accomplish. You should understand all the key proposals and find out if they are feasible. Ask yourself if the solutions are unique and can be implemented.
Technical details of the project – After gaining insights into how the project plans to solve given issues, this section should actually make you literally see how everything works. Remember, this part of the whitepaper consists of several technical terms. You should, therefore, ensure you research terms and analogies that you do not understand. Ensure you note down information about the blockchain technology, toke type, and security. Be thorough.
The Blockchain Technology
Investing in an ICO should be more than just knowing the product or team behind it. You should know what blockchain technology the ICO project will use. Key questions you need to ask should be:
Is the blockchain technology behind the project just P2P money? Is it a kind of distributed ledger technology or like Ethereum’s “smart contracts”?
Find out whether the blockchain protocol open-source and based on the proof-of-work consensus mechanism or is it based on the proof-of-stake consensus algorithm? There is even the Proof-of-Importance method.
Knowing the kind of blockchain will help you have an idea how you could engage with the ICO project in the future and whether you are likely to gain any rewards other than the resale value of the coin.
How does the Company plan to Raise Capital through ICO?
ICO startups usually use crowd sales as a means of raising capital for the project.
Find out if the tokens will be sold at an exchange site
Distributed to investors who make investment with the company
Moreover, it is good to find out if there any venture capitalists associated with the ICO.
Find out about the total number of token coins the project has earmarked for sale. Do they have a hard cap and are the coins pre-mined? Read about distribution strategies for the tokens.
What Tokens does the Company Launch?
Before you invest in that ICO you have identified, take time to find out about the type of coin token the project will launch. Find out whether it is purely a crypto coin i.e. currency or does the token have any other value attached to it?
It is important to understand the token type, because if you don’t, then it becomes hard for you to evaluate what potential that coin has as an investment. So you will need to find out whether the ICO token is in the category of stable coins, utility coins, security/equity coins or just an app coin.
Therefore, read about all the above tokens to determine which one you are about to invest in.
Read Reviews and other People Opinion towards the ICO
When looking to invest in an ICO it may pay to take time to read what other people think of the ICO. Although you will find a lot of information from the ICOs own marketing strategies, these are often one-sided.
Therefore, it is advisable to join cryptocurrency forums like BitcoinTalk, Reddit and other social media platforms to read or listen to what others have to say about the ICO. You will most likely gain valuable insights into the ICO and possibly, get one or two red flags you missed during your own research.
However, take caution against blindly following the advice given on social media or opinion reviews, you may be misled.
Investing in ICOs is always risky business. Therefore, before you decide to undertake any cryptocurrency venture, it is advisable that you research to identify serious projects from hastily organized ones that may simply be out to get your money. However, the nature of cryptocurrency means there can never be a surety that a given project will succeed. Invest only that which you could afford to lose if things go wrong.