What Is an ICO & How Can You Invest In The Right ICO?
Just what is ICO? The acronym ICO stands for Initial Coin Offering. As the name suggests, companies, especially startups, sell cryptocurrency or tokens in an ICO to raise funds for their project.
In many instances, these companies have not yet fully developed their Blockchain platform. So, they need investors’ money to create a new cryptocurrency (their custom coin or token), app, product, or services.
In essence, a new ICO project will naturally give birth to a new cryptocurrency in the block.
The Early Years of ICO
I can’t really recall the first time I heard about ICO. Probably around the second or third quarter of 2016. But I vividly remember the internet craze around it at that time.
I could still reminisce about the early days of crypto investments. The buzz around it was so huge that it sparked interest from main stream investors.
My curiosity got the best part of me, and with the promise of dazzlingly high returns on investments, I hit the internet to gather as many facts as I could about the newest opportunity in town. I even subscribed to YouTube channels and other cryptocurrency newsletters so that I could follow the trends.
Soon, I created a crypto wallet and also invested a few thousand dollars. That was just the necessary step for me to test the waters.
So, by now, you, too, have probably heard a lot about ICO. And perhaps like me, you got attracted by the huge ROI (Return on Investment) and extra perks it offers potential investors.
Either way, knowing what ICO is all about is just the right place to start.
How Does an Initial Coin Offering (ICO) Work?
The main goal of an ICO is to help companies raise funds. Therefore, the idea is like the other methods of crowdfunding, where investors can buy shares of a publicly listed company.
A typical example of traditional crowdfunding is the Initial Public Offering (IPO).
The only difference is that IPOs are for, new or established businesses. Investors that buy shares could claim ownership and may become a part of the company.
On the other hand, ICOs are mainly used for fundraising at the early stage of a company’s project. Here, investors do not have any ownership of the company. All you get is the company’s tokens or coins at the equivalent of the money you invested.
This is risky, isn’t it? Since you have no share in the company, what this means is that you won’t have any equity in the company. Hence, you have no decision-making power on the project whatsoever.
Initial Coin Offering’s (ICO’s) are what institutional investors would call a “Speculative Investment” That is High Risk
The absolute power belongs to the founders. And in the worst-case scenario, the company might disappear, with investors money going down the drain.
In other instances, the coins you bought might decline in value. Such coins are popularly known as shitcoins.
From personal experience, I have tasted the bitter pills of losing a few thousands of dollars to both scam projects and shitcoins. So do your research and don’t get caught up in the hype of the latest, WORLD CHANGING CRYPTO! It’s possible that it’s true but most likely it’s not…
How ICO works – Developing the ICO Assets
We mentioned that ICOs are developed purposely as a means of raising funds, and we are clear with that. But think of it; how are these digital assets (tokens/coins) generated, and how does it get to you as an investor?
The first thing you should know is that ICO assets are computerized, which is why they are called electronic monies. These assets are digitally created and then sold to the public in exchange for other ‘higher’ cryptocurrencies like Bitcoin, Ethereum, and more.
Therefore, as an investor, you support a project when they buy from their newly minted digital tokens/coins. This is how companies raise funds for their projects.
For most ICOs, their digital ‘tokens’ are developed on the Ethereum blockchain technology. Ethereum technology is a decentralized, open-source platform that allows the creation of smart contracts and decentralized applications (dApps). This simply means that rather than creating a completely new cryptocurrency you can just build a token on top of Ethereum as an Ethereum token.
Benefits of ICO Investment
Consider a couple of reasons why investing in ICO is a great idea;
Getting In On The Ground Floor Of A Cryptocurrency
One of the juiciest perks of investing in an ICO is when you get onboard earlier than others. The pre-sale or private sale stage is the earliest time to join an ICO.
An ICO’s pre-sale is when the company sells a set of token amounts before the main ICO starts. The main purpose of the pre-sale is to attract big investors that would swap their money for tokens.
Many projects need immediate funds to create awareness. As such, they sell out tokens at the lowest price than they would when the main public offering starts.
So, if you get in on the ground floor of an ICO, you can qualify for the highest bonus levels, which could snowball your profit margin significantly.
Higher Possible Return Potential
If you invest in the right ICO, there is a higher possibility of increasing your ROI exponentially, which makes ICO investing an ideal long-term investment plan.
Take this as an example: Suppose you invested in NEO during its ICO days between August – September 2017 at the value of $0.02 per token. Depending on the number of tokens you buy, you’ll have made substantial profits if you decided to sell at its all-time peak of $198.38 in January 2018. Currently, NEO price sits at $12 per coin.
How You Can Identify The Best ICO To Invest In
By the year 2017, the sheer number of ICOs that emerged was just overwhelming. I remember spending hours, even days researching hundreds of ICOs just to know which ones are worth investing in.
To date, there are tons of companies offering potential investors the opportunity to invest in their projects. And every single one of them promises huge ROI with some extra perks along the way.
But before you get too excited about the usual talk of huge investment take backs, you should be guided on the right ICO to put your money on.
So, with so many of them out there, how do sort the wheat from the chaff? The following tips would serve as a guide;
1. Do Your Own Research First
Before you even think of investing in something, you should find out what they intend to do with your money. You owe it to yourself.
An excellent place to start is by checking out trusted online newsgroups such as ICOdrops, CoinSchedule, and ICOAlert.
Once you visit any of these sites, you’d find a list of recommended ICO projects to invest in. You can then take the time to understand the company’s mission and purpose.
2. Read The Whitepaper
The whitepaper includes much information about the company and its tokenization. Still, you should also concentrate on knowing the concept behind the project.
The whitepaper gives you a better idea of what the company is trying to accomplish and how they intend to do so. Study the roadmap, too, to get a proper foretaste of their plan.
3. Consider These Questions About the Whitepaper
After reading the whitepaper, ask yourself these questions;
- Will this project create value for users?
- Is the project worth it?
- Why is the blockchain technology needed for this kind of token?
- Is being decentralized a benefit for this project?
- What is the market potential in terms of market size?
- What is the company’s token meant for?
- Will it be used as a payment method?
- Do they intend to use the token for fundraising to create new tech?
4. Are They Transparent?
Transparency is very crucial to picking which ICO cryptocurrency to invest in. One way is to find more information about the team behind the project.
If one or more of the developers are anonymous, that most likely is a red flag.
Another way to check the transparency level of an ICO company is the plan they have to utilize the funded money. Are there clearly laid out plans on how they intend to distribute the funds raised?
This vital information must be consistent in the project roadmap.
6. The Makeup Of The Team And Their Involvement
Before investing in an ICO, you should confirm the authenticity of the people behind the project. Plus, are they experienced in the field of cryptocurrency or blockchain? Do they have financial experts as part of their team?
Also, check the legality of the ICO. When an ICO involves a team of renowned legal advisors, it enhances the credibility and validity of such a project. Otherwise, it could mitigate the seriousness and trustworthiness of the project.
Going further, ask yourself these questions: Who are the founders and major stakeholders? Do they have reputable portfolios to show that they are capable of running an ICO?
Are they working hard, exploring various means to promote the ICO? Are they developing the ICO according to the roadmap? Are they attracting the interest of venture capitalists?
If you can answer a resounding, “Yes” to these questions, then it’s a good indicator that you can invest in it.
7. The Community
What are people saying about the ICO company and the project? To find out how reputable the company is, follow the happenings on crypto communities.
You can find helpful information on forums like bitcointalk and other useful cryptocurrency forums. Ensure you check out these places to help you in selecting the best ICO to invest in.
Just be careful not to get caught up in the hype of the community, remember most of the people in forums are just like you and most are working with limited knowledge.
As promising as ICO investment is, you should know that not all that glitters is gold. Experience has taught me that.
As part of a balanced portfolio, you should know that ICO investment is high risk on its own. There is no 100% guarantee that a particular ICO will be successful. Even a successful ICO could take years to reach its full potential.
Whichever way it is, ensure you are willing to take the risk before you invest in ICO.
Investing in the right ICO involves more than the fundamental knowledge of what is ICO. You should take the time to study every detail about a particular project before putting your money into it.