Initial Coin Offering (ICO) is a fundraising mechanism that involves introducing a new digital currency to marketplaces. A token created and sold in this process is often a source of funds raised by startup companies.
Before this kind of crowdfunding program was made possible, companies or individuals wanting to raise funds for their projects had to go through a tough, costly and regulated process, which involved banks, underwriters, brokers, lawyers, and lengthy dealing with a regulator. On top of these stresses, they also have to look for rich investors or promote the offering to the public. Moreover, interesting and promising companies are often not accessible for small investors until they grow and bring profit to private equity investors who eventually decide to list the company. A prominent example of listing equity to the public is Facebook; a particular investor gave Mark Zuckerberg $1M when he was about to start up and right now the investor is a billionaire. Normal basic earners were deprived of this remarkable opportunity due to the enormous expense involved and not having access to private offerings. They could only buy this stock much later and much more expensive when it was listed on Nasdaq.
To the contrary, ICO allows everyone to invest in new technology, products, and ideas irrespective of your level of income. This also allows the team behind the concept to raise money quickly and much easier. They communicate their plans and updates on a website, which also contains whitepaper, business plan, token features and a roadmap that will explain the why, what, when and how of their business.
ICO can raise significant money
Many ICOs websites have helped business raised money, and the top 5 biggest ICO sales of 2017 combined raised an enormous amount of 720 million USD.
ICOs in general are intended to helping start-up business to raise funds, but you have to be careful when trying to invest. NXT, IOTA, NEO, Ethereum are one of those ICOs that are giving massive return to investors thanks to delivering on their promises. In 2015, a NEO cost about $0.032 and they sold 17.5M tokens to raise $566k. People that invested have about 1000% gain.
Risks of ICO investing
ICOs can bring a massive return, but it involves a huge amount of risk. ICO often involves investing in ideas, without a viable and tested product on hand. When you invest in an early stage project or someone else’s idea, and you are betting your money, giving it out with the hope that he will deliver what he promised. This is a big risk as we don’t know those people that are working and what kind of developers will be dealing with the project. According to Forbes, 90% of startups fail which may be even higher when it comes to ICO. 200 to 300 ICOs are created per day, and 99.99% of them are worthless.
Moreover, there are a lot of pure scams related to ICO because a lot of people can create stunning websites with beautiful whitepapers and many positive reviews. You need to bear it in mind that there are scammers out there who are doing everything possible to steal your money. Since cryptocurrency transactions cannot be refunded, anyone can run away with your money, and there is nothing you can do about it.
How to research ICOs project
Let’s assume you found a perfect project and you can’t wait to invest in it. But before you go ahead, ensure to perform as much background research as you can, to know the fundamentals of the project and the people behind it. An interesting thing about ICOs is that we only hear about those raising millions of dollars to startup businesses, we often don’t hear about projects that went down, don’t that didn’t give return to people, those they didn’t deliver what they promised and those that are scammers. We only see the green numbers and they make us think we can actually wake up and become a sudden millionaire.
Your research should take into account at least the following areas:
- Try to find out about the CEO of the ICO and research about his background, past projects, failures and successes.
- Read his writing, watch his interviews, try to figure out the personality with their competences and integrity.
- Check out the developers as well, their skills and what they have done previously. As you are happy with the ICOs, the team, the project and the whitepaper, try to be proactive and have a foresight. Write down every single possibility of the failure of the project. Having the good and bad side of the project allows you to see beyond what it offers.
- Read others’ opinion because even when you think it’s a brilliant idea, there might be people with the view that the project is a bad idea which means you might not make profits.
When researching ICO also bear it in mind that a lot of projects are promising crazy things to deliver whereas the technology is not there yet. For instance, presently Ethereum holds about 15 transactions per second, and if tokens are built on Ethereum, it can basically hold second transactions per second. Imagine if Google, Facebook, Twitter, and YouTube are all built on 7 transactions per second. The fact is that the technology is not close yet and this can only change when Ethereum sorts out their scalability issues.
Where to invest in ICOs
If you are willing to take the risk involved and you think you can be among the 0.01% of ICOs that have brilliant ideas, Smart and Smith is one of the few reputable ICO websites to start with. However, if you see a beautiful project that caught your attention and you intend to invest, don’t be carried away with the stunning whitepaper, ensure you research for a similar project trying to solve the same issue. If there are similar projects, this will reduce your chance of profit. If you are unable to find a similar project, that doesn’t mean there won’t be similar projects in the next couple of months. ICOs are brilliant ideas that could make investors millionaire’s in the future. Majority of ICOs are nothing to write about which means your chance of becoming a millionaire is slim. However, it may be worth trying.