What are the risks of an ICO in 2020?

What are the risks of an ICO in 2020? - o.449393Just as huge gains can be made from an ICO, huge risks can also be incurred. If you want to know what kind of risks I'm talking about and how you can minimize them, this is an excellent insight into this.

What are the risks?

The cryptocurrency market is still under-regulated. This means that investors could be legally discovered if an ICO turns out to be a fraud or if the whole project fails. On the other hand, even the developers of an ICO can end up trapped in financial regulations.

Risks for buyers

It is clear, therefore, that both ICO developers and investors face many potential risks. As for buyers, the risks include:

  • Invest in relatively inexperienced teams with an unproven (experimental) business model and a high risk of insolvency.
  • No regulatory protection.
  • Limited transparency regarding the progress and problems of the project.
  • The risk of investing in an elaborate scam or pump and dump scheme.
  • It may be difficult to understand the complete picture of the ICO before investing.
  • The value of ICO tokens can be purely speculative and suffer wild fluctuations.
  • The advertising campaign of an ICO can outweigh its actual usefulness.

Risks for developers

Right now, ICO developers are taking risks due to:

  • Uncertain regulations that may result in fines, additional costs or convictions.
  • Uncertain regulatory difference between utility and security token.
  • Unstable investment currencies that can devalue extremely quickly.
  • Little or no information on token holders.
  • Interest in ICOs has been declining since early 2018.
  • Liability if project security is compromised and ends up hurting investors.
  • Risk of issuing incorrect documentation in regulated states.

Therefore, both parties should make a careful risk assessment.

How to identify a fraudulent ICO

If you see an ICO project in which you want to invest and want to minimize the risk of loss, look for potential alarm bells:

- The people behind the project are anonymous, use fake identities or have fake accounts on social networks.
- The team lacks professionals with experience relevant to the project.
- There is no legal person behind the ICO.
- The white paper and the business plan seem unrealistic and / or lack a detailed analysis of the market and competitors.
- The authors of the project do not provide an example of their blockchain code.
- There is no working prototype.
- There is no escrow portfolio for the delivery of investor money to developers (preferably in portions) only when certain criteria are met.
- The project does not commit any code to Github.
- The project does not have a clear roadmap.
- There is little or no credible PR or media activity or positive mentions of the project.
- The token or blockchain does not seem necessary to achieve the project objectives.

Try to avoid projects with numerous alarm bells or that are in uncertain regulatory environments. This way your ICO investment should be safe.