The “backers” and open source
The white paper can be seen as an investment brochure, like you would receive when planning on investing into an investment fund or a share issue. However, an ICO white paper is often missing one small but very interesting and important detail.
Who has published this white paper? If there are no details about the author or authors behind a white paper, just a pay-in address for Bitcoin or Ether, this should ring alarm bells! Leave it alone!
Don’t invest in black holes
For legitimate and credible white papers, the initiators are publicised and well-known in the sector. Due diligence can be carried out with a simple Google search.
A professional ICO investor crystallizes his approach in a very simple question he always asks at the start of his analysis, which is:
„How probable is it that the guys behind this are going to run off with my money?“
To answer that, a simple Google search is not usually enough. However, it is typically quite easy to do some further research to get the answers and reassurance that you need.
Research is essential
One way to gather more information is to check out the relevant forums. Look at how and with whom the initiator(s) communicate. Keep in mind that it is not enough to just see here that the initiator once tweeted Vitalik Buterin, the co-founder of Ethereum. You have to evaluate how the initiator communicates with others and on what subjects. When he or she has exchanges with other technical experts, what do they write about? Are technical questions discussed? How do others respond to them? Do they seem to be held in good regard by others in the community?
Even if you can’t judge the questions and answers yourself, you will know whether it is technical details or whether they are getting a lot of praise or blame from colleagues. Getting heat or blame is not a red flag in itself—it can sometimes just be a sign this person has awoken interest in the community.
Trust your instincts. If you do your due diligence and dig into enough research, you’ll have an instinctive sense of whether the person is credible or not.
If you have identified that the person knows what they’re talking about and is in relatively good standing, then that is a good basis for a small investment. However, it is still not enough to justify the risk of a larger investment. For that, you’ll have to delve deeper.
To deepen your own analysis, you’ll have to look at how many software codes have been published in the past by the initiator on the professional platform GitHub, and what happened to them. GitHub is an international platform that basically stores all the codes written by the programmers using the platform. The programmer can choose whether the codes are stored openly, just for the programmer themselves, or for the programmer’s company. If they are stored openly, it is called open source, and this leads to another very important investment criterion.
This interesting video shows how the programming in the Bitcoin blockchain has changed over the years. You can see who participated when and how the open source project grew bigger and more valuable.
Investment analysis — open source
Only if the software is, or will be, available as open source, is an investment appropriate. The more other experts have worked on the same open-source code, the more valuable the project and the more secure the investment.
I know that sounds a bit strange because surely if there is only one white paper, there is only one code. That depends. In any case, there should be older codes by the initiator and the initiator should have worked on other crypto projects. If they have worked on other projects—or at least left helpful comments—you will be able to see these on GitHub. Basically, the more comments and so-called Forks and Commits, the more stable the code and the greater the chances of profit.
How many are participating?
Another important indicator is the number of contributors to the project. Here, too, the rule stands; the more, the better. Up to a sensible upper limit, of course. If you’ve ever worked on a large group project, you’ll know that the proverb “too many cooks spoil the broth” can all too often be true.
Ultimately, it is important to understand who is joining in and contributing. If you can see that several of the top people in the sector have been working on the project for a few years, you’ll know the blockchains and the crypto project’s code is going to be solid, which is a good investment signal.
Question all statements by experts
However, you should not let yourself be deceived by so-called experts whose profiles on GitHub or other platforms claim that they have twenty years of experience as a professional developer and have worked for McDonald’s and Coca-Cola, or for Boeing and for the White House. Even the evidence— usually links to purported references—are just a cheap trick and are often completely worthless. Judge people by quality work indicators. Real experts have submitted or commented on code lines, pointed out errors in codes, and generally been a helpful resource to the developer community. Anyone else is strictly for the birds and should be regarded as a hazard for investment.
This is a lot of work
Wow! All of that seems to be a lot of work—and it really is! Everyone has to decide for themselves whether they are going to invest or participate in an unregulated game of chance. If you are investing large sums, you are definitely advised to make this effort. Remember; no miracles happen in the crypto world, but you can make extraordinary amounts of money if you have done your homework properly.
The rule described here is commonly known. Anyone who wants to make an ICO—especially those following unspoken motives—often try to hide their lack of competence by linking with experts, allegedly! So please beware and put the time into doing your due diligence before you part with your hard-earned money.
You can find more about this topic in my ebook
Successful crypto ICO investments: risks and opportunities
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