STEP 1 – Know Thyself
I’m a journalist in my 30s who appreciates stability. Instead of living in a downtown apartment, I live with my parents to save up on rent so that I can enjoy more financial comfort when I get married and have my own family. I prefer to receive recommendations when eating out at nice restaurants to guarantee high quality.
So, you can imagine that I wasn’t exactly thrilled when Bitcoin first came out. Yes, investing in cryptocurrency might deliver high returns but the risk seemed too high. This belief became more prominent as I started working for a blockchain media and began meeting with industry experts. Writing about scam ICOs and other negative issues including coin dumping has become part of everyday life.While I was reporting on blockchain companies, however, I developed a certain level of interest in some of them. They were blockchain-based social media platform developers. All of them promised compensation in cryptocurrency for promotional activities on social media. Rate of compensation was decided by the level of reader reaction to the uploaded content.
While I don’t make money through social media, I enjoy uploading pet-related content on Instagram. I post photos of pets and reviews of pet products two or three times a week. 200 people follow me for my pet-related activities. As pet-lovers, my followers and I talk about pet products or share information on hot spots to visit with pets.
STEP 2 – Information Compilation & Experienced Investors
ICO (Initial Coin Offering) refers to the process of issuing blockchain-based cryptocurrency and selling them to investors to secure funds. Investors profit from buying and selling coins that would go on to be listed on cryptocurrency exchanges. The value fluctuates depending on the business progress or the success potential.
I started pre-investigation. The easiest way was to look at online cryptocurrency communities through portal search. I selected cafes with the largest membership and new posts. It was my prediction that the most active cafes would have the most useful information.
I read the posts with many recommendations or positive ratings in the order of old to new. It was hard to find posts on how to select an ICO. Most of the posts were about profiting through buying and selling listed coins.
Plenty of posts were about blockchain technology or cryptocurrency basics but the majority was on coin market value and which coins were profitable. I selected a few ICO projects and investigated them further.
STEP 3 – To Invest is to Study
I decided to reference ICO review sites that I’ve used for previous reports. ICO Rating proved to be the most useful. For each project, ICO Rating lists the Risk Score and Hype Score in addition to the whitepaper, platform development and business plan and social media account of the company, which made it easier to compile information.
I selected four projects from ICO Rating. The first thing to check was the background of the CEO and CTO (Chief Technology Officer). It is common for ICO companies to list LinkedIn addresses or other trustworthy profile for team members. Projects that did not disclose this information were excluded from my search.
A team member’s academic background or high-profile career does not necessarily determine whether a project will succeed but work experience in a related field has a significant impact. I decided that graduating with a related major or having experience in a related field would benefit the project, which is why I looked into whether the CEO or other team members had any experience in the social media industry.
The projects I’ve selected did a good job of listing the team members’ profiles, which made them more credible. The CEOs and CFOs graduated from prestigious universities abroad and worked in Silicon Valley. Other team members also graduated from prominent schools and had the proper work experience. Looking at how some of the CEOs graduated from a famous Korean school and worked at a leading conglomerate in Korea, I began to wonder why these people who have no prior experience in the social media sector decided to start a blockchain-based social media business.
During my investigation, I skipped the advisors who were listed on most ICO projects with their impressive background. This is because advisors often do not directly participate in the making of an ICO but rather receive coins or stocks for lending their name and profile. Sometimes, companies would even sign partnerships. Of course, the team profile on LinkedIn can’t always be trusted either. Considering how P2P finance platform ZPER’s co-founder Lee Seung-haeng forged his academic background, we must always remain cautious when it comes to profile information.
STEP 4 – Understanding the Long and Technical Whitepaper / Check the Number of ‘Commits’ on GitHub
Whitepapers are long, difficult and often boring. Those of you who have trouble falling asleep might benefit from reading a whitepaper. It is not an easy task to read whitepapers of projects in the same industry since are similar in terms of content, design and language. I looked at how valid the whitepaper is, what objectives are proposed, and how realistic the roadmap is, but unless you know the company inside out, there is no way of being 100% sure of the project’s potential. The vast majority of the roadmap consisted of plans for the second half of the year and the best way to guarantee whether the promises would be fulfilled was to see if the company has been meeting deadlines in the past.
Next, I looked at algorithms and graphs in the whitepapers. Being a psychology major, I wasn’t very good at understanding computing algorithms, but these elements reflected the team’s interest in helping investors understand the project better. Sometimes, a visual element like a graph is more convincing than words.
Lastly, I listened to analyses by independent experts on Medium, Twitter and YouTube. Their explanation helped me understand many difficult parts on the whitepaper. Experienced investors recommend users to check GitHub and smart contract.
GitHub is a website that discloses open source codes for ICO projects. Since I did not understand coding languages, I interviewed a blockchain platform developer for help. The developer said, “Checking the source codes is an important step in evaluating the validity of an ICO,” and went on to explain that “This is because it confirms the existence of a source code, whether it is a proper source code and whether developers are doing their work.”
He also said, “Unless you’re a developer yourself, you won’t gain much from checking the GitHub pages. You can, however, check the number of commits. A commit is the number of times a source code has been altered. If there is no commit, that means the source code has never been modified. If you see a long history of commits, that means the source code has been updated many times.”
Smart contract is a very small software operating only on Ethereum-based blockchain networks. Issuing a token means generating money on the blockchain and distributing it. In order to create a token and send it to the user’s wallet, you need a software. Smart contract is a platform that develops this software. This software is mandatory for token issuing. Unless an ICO company has a smart contract, it cannot issue a token.
After the interview, I was able to check the source code file on GitHub and confirm how diligently the project has been developed through checking the commits. One of the four companies I looked at had no GitHub file and only one of the remaining three had both the smart contract and open source codes uploaded.
STEP 5 – First Coin Purchase, Beginning of a Successful Investment
I selected one social media platform out of the four I initially picked, an actively advertised Korean company based in Singapore. Coin purchase proved to be a challenge. The coin was listed on only one newly-launched exchange, which meant I had to transfer the funds I had in another exchange after opening a new account with the new exchange. I bought Ethereum from my exchange and tried to transfer it to the new exchange.
The process of subscribing to the new exchange was complicated. I needed to go through a verification process, but the verification message failed to arrive multiple times. I called the customer service and waited 30 minutes before the exchange sent me the message, but my phone still did not receive the message. The exchange ended up telling me the verification number directly. This made me feel slightly uncomfortable. I hesitated to make the purchase but decided to go with it. After signing up, I purchased the minimum amount possible. Now all I need to do is wait until the project completes the ICO events and gets listed on a major cryptocurrency exchange.