If you are novice in cryptocurrency and heard lot about ongoing ICOs every now and then. You could be among one of them, already involved in cryptocurrency but didn’t aware of ICO concept. In any of the above cases, this article will turn out to be helpful.
What are ICOs?
An Initial Coin Offering (ICO) is an offering of new cryptocurrency in exchange of an already existing cryptocurrency or fiat currency such as EURO, USD etc.
As the name says Initial Offering which means that this offering is done at the initial stage of the project. The initial stage could be as initial as just after the development of new coin or even before finishing the development.
Intention behind ICOs
The main objective of an ICO is to accumulate capital. Companies put forward their business ideas in market and initiate an ICO. We can directly relate these ICO with taking loans from market, bank, etc in order to turn the business idea into reality or to expand the existing business. Each token holds certain value that company decides and investors are offered each token at those price.
The prices in ICOs are aimed to be low. Hence the investors are more likely to take risk at an initial stage if they believe the project is good and would be fruitful later.
Here is an explanation with example. Ethereum Foundation held an ICO for Ether (ETH) in mid-2014 for 0.0005 BTC per ETH. With this, It turned out to be one of the largest crowdfunding ever, which was served as a capital base for the development of Ethereum.
While for Investors, it was like an investment option where they will buy newly cheap coins at very low rate and will wait for it to be listed on exchanges. Holding coins from a trustworthy and successful project could be very profitable after it gets listed on exchanges. The profit is of 1000 percent which is a huge speculation.
Legality
As we all know cryptocurrencies are mostly unregulated so as their sale. Initiating an ICO is extremely easy as it is not regulated and thus risky as well. Jurisdictions seems to aware of ICO and tends to regulate it like a sale of shares and securities. Regulations will bring some security for the investors. Currently investor’s investment in ICO is mostly at their own risk.
On the other hand, there are those in favour of no regulations and believes it will be better for the industry to develop.
Uncertainty in ICOs
Though ICO is very popular nowadays and most of the investors are attracted towards it, It is not always profitable. ICO rides a see-saw of profit and loss. Projects that are genuine, feasible, and hyped are likely to be profitable. Because that will attract more investors into it and price tends to increase but that’s not guaranteed. Hence ICOs environment seems to have lots of uncertainty.
How to determine which ICO is good for investment?
Before investing in any ICO, be careful to take a look at few stuffs such as the whitepaper, team members and their experience in cryptocurrencies.
White Paper is one of the essential ways to understand the project. Try to understand the project. Remember most of the project’s White Paper looks very similar with having repeatingly big and strong words but unfortunately making no sense.
If a project is genuine and the team behind the project is genuinely wants to work on the development of their project. They would definitely move forward and introduce their development team and as well as the company behind the project. Anonymous team not necessarily but can be considered as red flag for investment. Also remember to research about their members as there were many cases in past of fraud members on ICOs website.