An ICO is an Initial offer of coins. A coin is a token that represents some utility. Before a project is launched, ICOs are used to build the product stipulated in the white paper. ICOs are open to anyone as long as they are legally entitled to participate per the laws they are required to follow.
Sometimes an ICO is also referred to as an ITO (Initial Token Offering) Most ICOs have one or more white papers describing a business process, a fresh currency with added advantages, or a token that provides better functionality. An ICO allows investors to purchase these tokens in exchange for other cryptocurrencies such as Bitcoin or Ethereum.
An Initial Coin Offering (ICO), tends to give us the feeling of an IPO in investments based on conventional markets. Companies attempt to raise funds through the sale of their tokens, that functions as a stock. Investors purchase these tokens in an ICO rather than a stock.
One can purchase the tokens with three distinct types of resources- Bitcoin, an altcoin such as ether or a Fiat currency.
Across all cryptocurrency transactions, these tokens can be purchased and traded.
However, ICOs are misconstrued as a digital currency, but they are quite different in reality from one another. A cryptocurrency is centered on a security protocol for’ proof of work’ while an ICO is based on’ stake proof.’
This implies that every miner in the digital currency blockchain can get a coin, but miners can receive a processing fee or a stake in the business in which they invest. Therefore, the first thing on one’s mind should be to be conscious of the pros and cons of a crowd sale.
Investors need to remain open to any red flags, however.
Most significantly, ICOs provide a chance for successful initiatives to shine. Ethereum is a typical example.
Another brilliant thing an ICO succeeds in doing is building a relationship between the project and the community of participants. Any ICO creator worthy of their salt will tell you how critical a healthy community is for them to develop.
This is an ideal instance of Quantstamp. Because of their good connection with their society, they were willing to increase all their ICO cash organically.
Similarly, ICO financing gives developers an enormous incentive to take the additional step and come up with more interesting and innovative projects.
ICOs provide them with an opportunity to invest and discover the “next big thing” for investors.
Liquidity Value of Tokens in an ICO
The ICOs in which you invest give you the tokens you can trade-in in a secondary market where the value of the asset is the coin in which you have invested. This can ensure the return on an investment. Investors can also see how the company performs based on the secondary market and pricing in real-time.
Direct Access to Startups and Investors
The ICOs offer a good platform where investors will not have to face the obstacle of being closed out by authorities for not qualifying as an advanced investor. Fundraising and investment become more available in an ICO, thereby democratizing the entire process.
This process has a low entry barrier and helps startups, and it becomes unnecessary to establish a formal relationship with an accounting firm.
A lot of public records have to be made before an IPO is executed in a usual IPO, an investment bank must function as a broker. Here, on behalf of the IPO, the bank or the underwriter drafts documents such as Letter of Intent Underwriting Agreement, and Registration Statement.
After going through all these documents, most projects do not get the exposure and remain trapped in the bureaucracy. ICO gets rid of all these processes making it a seamless one.
ICOs offer investors the privilege to have their hands on a digital currency when the price is extremely low. This means they can make a great gain in the event that a slight increase arises on the crypto.
Imagine buying into Bitcoin when the price was below a dollar. Recall that’ $1,000 spent on Bitcoin in 2013 will be worth over $70,000 today.
A whitepaper doesn’t mean the product is ready.
These companies tend to portray their whitepaper without adequate info. There is a lack of proper implementation even if the product is ready. Investing in such an avenue has a lot of hype around it.
As long as the project is meaningful and market demand for the product appears to be valid, a well-informed decision may be made by an investor.
Today, even after experiencing the fall of the bitcoin bubble from a peak of $20,000 to $6500 in November 2018, Bitcoin is one of the most stable coins. In terms of volatility, ICOs can be similarly drastic and price stability at the initial stage may be guaranteed.
Investing in it can put an investor at enormous losses without an adequate understanding of the variables that influence the ICO product.
There are various methods an ICO could go bankrupt or be a fraud altogether. Some common scams have occurred in the past. CoinDash: $7 million theft happened when a hacker substituted the lawful address to buy tokens with an Ethereum address that was fraudulent.
The DAO3.6 million ethers were siphoned off by a hacker.
Insurance against hacks and fraud is a must as the technology progresses and draws a lot of attention from investors. Many refrain from investing because of the substantial risks associated with such tokens.
It seems simple to launch an ICO because all it takes is programmers and the internet, but in fact, a very powerful security system needs to be engaged.
Besides the above data, before buying in an ICO, it is always important to do your homework. Weigh all the benefits and disadvantages you find and ensure it is worth it. Participating in such undertakings will help you learn a lot about the sort of jobs or whitepapers you want to invest in. There’s a lot of debate going around, but you’re the only one that can determine what you’re set to go for.
Remember how that the absence of documentation concerns is one of ICO’s greatest pros? It’s a double-edged sword, sadly. Loads of scammers entered this space in hopes of making a quick buck.
They merely generate a bogus white paper or omit some of their whitepaper’s more significant information to make their activities seem more important and complex than they are.
You don’t invest in the project when you invest in the ICO of a project, you invest in the concept of the project. As such, it operates on sheer speculation based on white paper quality and team credibility. So, you have no clue if, when you invest, the project will be a breakthrough or not.
This is where it is necessary to consider certain hard facts. Ninety percent of startups are failing. Either the product is not working or the developers are becoming lazy. Also, as the DAO attack showed, a slight error in the code may be enough to put a project crashing down, if everything else is in place.
The presence of “crypto whales” may be problematic during ICO sales. The most notorious instance is BAT ICO. In 24 seconds, the ICO has been able to realize a stunning $35 million! It turned out that some individuals owned most of the tokens, which defeats the decentralization purpose.
These individuals are referred to as “crypto whales” or simply “whales.” These individuals use their substantial financial power to dominate the order, Paying as much as $2220 in transaction fees during the BAT ICO whales!
An ICO is an exceptionally laborious blockchain occurrence, at least as it is currently intended. The reality continues that blockchains are merely not sufficiently scalable to engage in heavy-duty operation.
The $100 million status ICO so badly blocked the Ethereum blockchain that many people simply couldn’t participate because the transactions didn’t happen.
This can also operate in the opposite direction.
The SophiaTX ICO had to postpone its deadline because everything in the Ethereum blockchain had been blocked and slowed down by the Cryptokitties game.
ICO tokens based on Ethereum are simple to maintain because they could be placed in any wallet of Ethereum. But when it comes to many other platforms, things get difficult.
These tokens might not be consistent with your wallet more often than not, and storing them could be an exercise that is extremely tiring and annoying.
ICOs are also steadily coming under the watch list of regulatory bodies such as SEC, as you are very well conscious of. By making it mandatory for US-based ICOs to state whether their tokens are securities or not.
Finally, government intervention is the next step towards increased regulation. Because of the massive amount of uncontrolled money ICOs deal with, they may be considered unsafe by the government and simply prohibited in their country. Perfect instances of this are India and China.
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