3 Traps That Can Sink Your ICO - and How to Avoid Them
In the first quarter of 2018, ICOs have already raised almost 7 billion dollars [Coinschedule.com]. The pie is big, and what’s even more important, it is booming - in half a year we will raise more funds in ICOs than in the whole of 2017.
But you know all that well enough, and the reason you’re here is that your company is seriously considering cutting off a piece of that delicious pie for itself.
We are here to share our experience and make sure you won’t burn your fingers.
>> How to launch an ICO project
Now, to the point. What are the biggest issues you have to face?
Preparing your company and website for an ICO
The first IT topic strictly related to your ICO campaign is the website, which falls into your domain as the tech expert.
It can be either neglected or perfectly polished by your marketing team, but in both cases the more important thing for us is a technical background which guarantees safety. We are dealing with financial data here, and people put enormous trust in your brand to take care of their money.
As the tech expert, it is your job to ensure that nobody messes with the data displayed on your website, and the investment process is smooth and secure.
Our pro tips:
Avoid content management systems for your website.
They can open your doors to online threats. Even though it often allows your team to work more as the middleman between marketing and the website itself, in the end it’s a fair price to pay to prevent your website from being hacked.
Educate your coworkers.
For many small and medium-sized companies, an ICO may be the first project of such a vulnerable nature. You are the one that fully realizes the threats and consequences of possible attacks. It makes you the natural chief security evangelist.
Of course, this can easily turn into a full-time job, and we do not want that. For a start, just make your team aware of the threats, and remind them about security standards, proper passwords policy and not opening those weird attachments.
During the ICO, you will also have to build a web application to allow your investors access to the system as well as to manage the process of buying and selling your cryptocurrency. Bugs and holes in your app code can drown your ICO in no time.
Your private key is a password to your cryptocurrency account. You will have to use it to allocate tokens to your investors in the final phase of the ICO.
We’ve observed a tendency to store this asset in a rather light-hearted manner, putting it into unverified applications and storing it in insecure places. You do not want to do that - giving up your private key means that you lose control over your account and your money.
That’s why during our ICOs we suggest a process based on the MetaMask Chrome extension, which allows you to avoid unnecessary risks. It gives you more control over your private key, and makes sure it won’t be used to transfer your funds into the wrong wallet.
>> Verizon Data Breach Investigations Report
Phishing is a big threat, and you shouldn’t underestimate its power. The most fragile moment to target will be in collecting funds during your ICO - money sent to the wrong crypto account will never find its way back.
In this time, your investors might be getting deceitful emails almost indistinguishable from your own, urging them to take actions which drain their funds and expose them to other threats.
How to protect them? The team responsible for your company’s communication has to get them prepared.
From very first contact, your company has to display a consistent method of communication, keep the process simple, and make sure the investors will expect the steps to follow. It gives them a frame of reference and helps to prevent third parties from cutting into your process.
There’s also an extremely important second pillar to avoiding phishing: protect the sensitive data of your investors.
And the sensitive data takes us directly to the next station, where waits no one other than your own government - dressed all in white, with a friendly smile on their face.
2. Legal issues
In many cases, the obstacles in the way of your innovative ideas might not be of a technical nature: you might simply be grounded by the legal landscape.
In the dynamic environment of cryptocurrency regulations, you often have to anticipate the actual regulations and prepare for the biggest risks, and for those with the highest probability.
However, you might encounter cases where dynamic changes in the law will surprise you.
That’s what happened in on of our ICOs. Due to new legal regulations in the US, we couldn’t use direct funding through our application, and had to pivot in order to adapt to the new regulations.
In short, be ready, analyze, consult and keep a finger on the pulse. It has a big impact on the technology you use - make sure that your organization understands this and understands the legal risks of your project.
KYC - the Know Your Customer process in ICOs
Risk connected with unstable law regulations are an inherent part of cryptocurrency markets, reflected in the stock exchange. However, there is one constant element of these regulations that can influence your project and inflict a lot of additional work - the Know Your Customer process.
The decentralized and independent character of cryptocurrencies is known for being a perfect resource for criminal activity. The KYC process is a way to protect your business from money laundering activities, allows you to better understand your customers and is mandatory for US banks as well as many businesses in the UK.
There are few ways to achieve compliance with these rules.
The quickest and easiest solution is outsourcing, but it may also be an expensive one. Companies specializing in KYC charge up to $8 per customer, even when he buys a token worth only $2 from you.
I bet that at this moment, I got you thinking “Hey, for $8 a person I can make my team do it inhouse”, and well - yes, you can.
But it all comes with risks - in conducting the KYC process you have to deal with sensitive data and strict legal regulations. As they say, with great legal regulations comes great responsibility - securing it and assuring compliance may consume a significant chunk of your budget.
In short: a process that many people don’t realize exists might take out a big, nasty chunk of your budget.
In some cases, creating a custom solution may be worth it, in some it may not. It’s a topic for another sizeable discussion. If you need some personal advice on your case, simply contact us. You can either build a custom solution to handle the whole process of collecting information or ensure proper integration with an external vendor.
With crypto prices going up and down. In budgeting your project you might feel similar to an investor watching his account balance fluctuating between extremes of high and low.
It is not easy to estimate a ICO project’s value.
The reason behind this is the complexity of such projects. You might already have some features on your mind to adjust the planned cryptocurrency and ICO process to the needs of your business. From the perspective of the company that delivers such projects - we know how complicated those ideas might become.
For example, your system might include more than one type of token with different accessibility for investors. You may have custom Smart Contract features, or maybe even a custom blockchain in general.
Truth be told, the budgeting issue is where both previous challenges - safety and law - end. Security might establish a big upfront position in your budget, while the law might influence it by changing requirements or forcing you to pivot.
To give you an idea of the basic ICO project back-end cost, we’re creating an ICO Project Calculator. It will give you an estimate of a basic project. Sign up for L4A newsletter and be the first to get it.
In the end, an ICO is a fundraising mechanism. It involves collecting sensitive data and money in a field where the legal regulations are still uncertain and volatile. To safely deliver a proper ROI, your company has to assure a proper technical background to address these threats.
As a tech expert in your company, you will be on the front line of this battle. You will often see gaps where going the extra mile will help to ensure a successful project delivery, such as the mentioned education of your staff on safety.
In delivering ICO projects, we know that a proactive approach is often crucial in ensuring we get through the whole process smoothly and reach the end with a successful touchdown - avoiding these traps and many more that you might yet encounter.
Let’s simply talk about your project
The L4A team knows how to avoid traps in web and blockchain development. We would love to hear more about your project and help.
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