Introduction
2017 was undoubtedly a very good year for bitcoin and several cryptocurrencies as they recorded massive gains. The hype, momentum and public interested in cryptocurrencies led several investor to tap in the ICO's. Ico is a controversial way startups raise or generate funds through sale of its crypto tokens
In this post, I'll be explaining what an ico is and things you need to know before investing into one.
What is an Ico?
An initial coin offering (ICO) is a means of crowdfunding, through the release of a new cryptocurrency or token to fund project development.
It is a way used by startup companies to raise money, it is similar ipo (Initial public offering) used by companies in the business world.
How Do ICOs Work?
The developers of the crypto coin/token usually create a smart contract using the ethereum blockchain. Interested participant register on the ico platform and get a special bitcoin or ethereum wallet addresses to make deposit. Upon sending btc or eth to the provided address, registered users or subscribers who participated on the token sale will get the crypto tokens, the equivalent of crypto equity.
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Things to check out before investing in ICO
Ico has been a controversial way of raising funds by startups has Nearly 50% of last year's ICO projects failed. However there are things to check out before investing in an Ico to minimize the chances of losses. They include :
1. The Whitepaper/Roadmap
Whitepaper is a document which details the issues, solutions, goals and plans for a cryptocurrency. The Whitepaper should be simple so that the average person can understand them. The Roadmap is a detailed plan for the next 12–18 months detailing the timeline a startup seek to achieving it's goals and objectives. A promising whitepaper and good roadmap tells a lot about a company or startup intentions.
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2. Team composition
The development team, marketing team and advisory board behind an ico project gives some sort of idea of what to expect from the project. Also investors should check thoroughly if they have the right set of minds needed to undertake an ico project and duly check their track record. This is a very important factor to consider before investing in an ico, has individuals behind it won't want to soil their names thus ensuring a form of credibility to the project.
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3. Token distribution and type of token
Investors should ask themselves exactly what this currency will do after its production. The type of token whether it is equity token, utility token or asset token. Greed can be defined by a high token distribution. If token distribution is too high it could be unrealistic. Investors need to watch out for this.
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4. Communication between project managers and investors
Every investor should seek to know how a project communicates with its investors. They should be a form of communication either by Facebook, Twitter or telegram, bitcointalk etc. This is really an important factor, the team must be in frequent communication, they should also illustrate their accountability to future investors by given them weekly updates.
Conclusion
ICOs represent a new way to fund an emerging technology. However the lack of regulation has led several startups to exit scam and led people to loose money by investing in this kind of projects. Looking at the things in consider before investing mentioned above in this post, will help reduce or minimize the chances of losses in ICO's.
ICOs aren’t going away, but if you’re ever going to invest in one, do your research(dyor) and invest wisely.
Nice article man....its also good to consider a coins real life use case scenario or general usage/importance before investing in the ico
Very true. Thanks boss for your input @amec. Also thanks for stopping by
Yw man
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Ok, i definitely will. Thanks for stopping by
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Very informative post. Thinking on investing in ico and some traditional coins, I find this post helpful.,Thanks for sharing
Glad you find helpful. Thanks for reading
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Really helpful