The intention of this article is to bring to your knowledge some basics of ICO and how you can safely invest without losing your hard earned money
What is Initial Coin Offering (ICO)?
Well, Initial Coin Offering (ICO) is the issuance of a new coin or tokens to investors in exchange for existing coins like Bitcoin or Ethereum. This is often used to raise capital and strengthen the introduction of a coin or token in a rather competitive market.
Initial Coin Offering is similar to Initial Public Offering practiced by companies with the exception that you do not own part of the company you are investing in. With the success of Litecoin, Ethereum etc., more projects have been involved in the development of new cryptocurrencies through the issuance of tokens or coin to crypto investors.
How does ICO work?
With ICOs, investors are offered new cryptocurrency in exchange for the existing one in hope that the newly created cryptos bring them more money than just holding the existing one.
Get some more details in our article about What is an ICO?
How can Initial Coin Offerings be of Use to me?
Having known the meaning and how ICO works, the next great question on your mind is how ICOs can benefit you.
- ICOs are used to limit the bottleneck that is usually involved in capital raising as often seen in banks and government bonds.
- With the tokens issued, it will be easy for the new cryptocurrency to penetrate the market and take its place among the existing digital currency.
- Buying during an ICO will often (but not always) give you a competitive advantage by entering the market as early and cheaply as possible. So great profit is possible as the project develop and other investors get into the project.
What are the steps involved is ICO?
Knowing the steps involved in ICO will enable you to invest safely. The following are the steps involved in ICO.
Announcement: here the new crypto coin will be posted on the website that is mostly visited by the investors, where a whitepaper outlining the details of the project will be released.
Offering: this is the step whereby the terms of the ICO are clearly stated for the investors. It contains the project details, required capital and project timeline. It usually comes with the financial instruments which the tokens will be sold for.
Campaign: this is very important for ICO with the aim of targeting more investors to raise the needed capital. Often the campaign period will last for a month or even two, targeting corporate and individual investors.
Once the market campaign ends, the new coins or tokens are issued to all investors, If they are not all sold, the tokens or coins that are unsold will usually be burn, redistributed to the investors or used by the team to promote the project.
How can I safely invest in ICO?
Considering all the ICOs that are scam or just worthless out there, it is pretty difficult knowing how to invest in one safely. However, having a sound knowledge of ICO will enable you to know how to invest safely.
Before investing in any ICO, it is important you carry out research on the coin or token you are about to invest in. The following tips will be useful when doing your due diligence;
• Read extensively on the background of the coin by checking their website and whitepaper.
• Check out the coin’s team and advisors
• Check to see whether there are external investors involved in the ICO
• Observe their social media channels as well as blogs whether they are regularly updated.
• When reading the project’s whitepaper, if the whitepaper is too technical, seek for a pundit that would evaluate it for you.
• Examine terms and conditions of the ICO. If the terms and conditions are not favourable to you, that could be a red flag.
• How is their roadmap like? Is it just a common wish list or a list of realistic projects?
• What are the plans in place that the team intends to spend the ICO funds on for them to move forward?
• Review all social media comment about the project. Check Telegram, Reddit, and Bitcointalk, you will get a handful of information about the project. If there is any red flag, its common sense to flee from such project.
Is ICO investing for you?
Due to the risk involved, it would be wise for the investor to avoid the ICO and wait until the coin or token is launched and listed on the exchange before buying. Although some coins do appreciate immediately after launching, some lose value or yield an insignificant profit over time.
It is often hard to tell which ICO will succeed, some will crash 50% and other one can bring you 500% over night. It is now your choice to decide if ICOs are for you or not. If you decide it is, always remember, do not invest what you can’t afford to lose! We say it all the time.
Are there any regulations against ICOs?
The participation and owning of ICO are dependent on the laws of each country, make sure you are allowed to invest before you do.
It will be good to note that ICO and cryptocurrencies are in an unstable position with the regulatory bodies in various regions of the world. Investments in ICOs could be frustrating if a country decides to ban it against the investors.
What does the future hold for ICOs?
Presently, Initial Coin Offering has created outstanding digital currencies; its usage has encouraged investors into participating in the world of digital currency and blockchain technology. More and more cryptocurrencies will be created, and their success is dependent on the level of acceptability of its ICOs. After all, most of the ICOs don’t have a working product yet. It’s you as an investor to decide if one is possible and you believe in the team enough to give them a chance and support one project over the other.
Always do your research before investing. Don’t jump on an ICO just because it’s hype by some social media influencer. Always search by yourself because it’s your money and you have to feel comfortable to give it to X project. Only you is to blame if you don’t research.
Have a good search!