The buzz words such as cryptocurrency, ICO, crypto assets, etc. are taking the financial world by storm. But what are they exactly and how can someone be a part of it? If you have just realized the importance of investing in the crypto market, and are a little overwhelmed by the megastars of the crypto sphere such as Bitcoin (BTC) or Ethereum (ETH) and feel that you have missed the bus, then ICO can be your savior. But we warned that although ICO is a highly lucrative way of earnings, at the same time it comes with great risks too. We don’t want to scare you but want to give you a complete perspective on the ICO. So, let us begin!
What is an ICO?
The full form of ICO is ‘Initial Coin Offering.’ To understand ICO, we first need to check out its background to get a grip of what it is. So, think about a business. There are a few ways in which it can grow. One way is that it can follow the traditional time-dependent route, which brings it some profits over time with hard work. Next route is about actively pursuing growth by seeking investors from outside to nail down the support needed for growth. That support is scored by a partial ownership stake. Another route, which runs parallel to the second route, is about offering investments options to the public instead of partial ownership stake. Therefore it is called- IPO, which stands for- Initial Public Offering.
Now, we can come back to ICO. In a way, ICO is the digital form of IPO. The investment is mutual between the investor and the company offering the ICO. The investor can buy the crypto coins through fiat currency or other crypto coins. The investments by the investors help the company to grow and establish itself and start to gain profits. And the profits bring back the investors their investments and the added benefits in profits. The main objective of any ICO is to create the new crypto coin, related apps, or similar services.
The structure of a good ICO-
The success of any Initial Coin Offering highly depends on the strength of the idea. There are a few aspects that define this strength. Here is a simplified version of ICO structure-
- By strength, we mean the growth potential promise, and the innovativeness the idea holds. The quality of the idea determines how far the company will be able to hold its grounds in the crypto market. After all, the investment has to be profitable.
- Now comes the stage where the company opens about its idea to the public. Upon gaining enough traction, the company can launch formally into ICO process. At this point, the company or the start up draft a white paper that contains all the details of the project such as-
- How many and what kind of professionals will be working on the project.
- The scope of the project.
- The number of tokens that will be released during the ICO.
- The price of the tokens.
- The ways in which the user can purchase the tokens.
- The manner in which the tokens will be used in the growth of the project.
- The upper limit of the sale target, if it gets reached before selling all the tokens.
- The number of ICO days, launch, and end dates of the ICO.
- After deciding upon the above factors, the company now ventures into marketing. Marketing allows the public to know about ICO. Sometimes, some company also opt to launch their tokens on various crypto exchanges too.
- After all this, ICO gets launched and the investors can buy the crypto tokens.
Why ICOs can be risky?
ICO is a great concept, till the time the rules are not bent and played with. The manipulation of the rules gives birth to potential risks. Here are a few points that should be kept in mind while thinking of investing in any ICO-
- The concept of ICO sounds all goody-good. But the problem arises when the ICO is not conducted as per the legal requirements of the country in which it is carried out. As an investor, before investing in any ICO, you must check whether the company complies with the regulatory authorities of the country.
- There are two variants. One is STO (Security Token Offering), and the other one is ICO (Initial Coin Offering.) If you wish to earn through ICO, make sure you read thoroughly through the white paper of the company to ensure it is ICO and not STO.
- The ICO structure of mutual benefits bot to the company and the investors sounds perfect as a concept. But like in real-world we meet all kinds of people and contradictions, in ICO world too there are cases where people misuse this structure for deceiving. It is not to say that all the ICO are deceitful, but what we are trying t say is that before investing, make sure you have checked the credibility of the project proposed. As there have been cases where the start-up or the company complied with all the steps, sounded perfect and promising in the white paper, made tall promises to the investors, and once the ICO reached its target, the company vanished through the thin air, with the money invested by the investors! So you should check for-
- The credibility of the company of the start-up offering the ICO.
- What was the past performance of the company?
- How reliable is the customer support service of the company?
- Customer reviews about the company.
- Read the white paper like the Bible.
- Go through the offline and the online presence of the company.
We hope this article gave you a good groundwork to understand the crucial aspects of ICO. Just remember your awareness is your best friend in dealing with any ICO related matter.