An Insightful Study of Initial Coin Offerings (ICO) For Everyone

Cryptocurrency paved the way for many possibilities and investment was one of them. It offered investors a cheaper way of securing plenty of profits. When the concept of Initial Coin Offering (ICO) emerged, it opened a whole new stream of investment. With this instrument, the growing number of crypto users could invest in any promising project.

They were getting a chance to invest in many proposals. They didn’t have to spend a hefty sum of money to do that. They could buy ERC20 tokens that were available at throwaway prices. If the project has potential, they could secure great profits as well. On the other hand, it was a boon to the growing breed of entrepreneurs as well.

The ambitious visionaries didn’t have to find angel investors. They didn’t have to beg banks or NBFCs for funding. They just had to present their proposal using blockchain. ICOs became a big phenomenon the business and investment soon. 

On the other hand, it became a go-to method for defrauding investors too. Several fraudulent schemes were orchestrated using the same means. 

Thus, exploring the landscape of this blockchain-based fundraiser is a must.

ICO: In a Nutshell

The first ICO was rolled out in 2013 by software engineer J.R. Willet. It introduced Mastercoin and successfully raised $600,000. Year by year, the number of projects using ICOs kept increasing. The overall sum raised through this also keeps soaring. By 2017, ICOs raised over $5.4 Billion and made an indelible mark in the markets.  

The involvement of a massive amount of money attracted regulatory attention too. In the very same year, the Securities and Exchange Commission (SEC) tightened regulations around it. It decreed that the ICOs must abide by the US security laws to operate. In case of failure, the parties conducting the campaign will face legal action. 

The regulator considered all ICOs as securities and hinted that breaches would attract class-action lawsuits. Regulators from many other countries voiced the same concerns. Nations like Australia and the US issued warnings to inform investors about the risks involved in crypto. China, South Korea, and Thailand imposed a blanket ban on ICOs. 

However, it should be noted there is no uniform law regulating ICOs. 

Risks of ICOs That Investors Must Know

According to many market experts, ICO projects are a high-risk investment. That’s because there’s no way to prevent fraudsters from using this method. In 2018, a Bloomberg report revealed that nearly 80% of ICOs were believed to be scams. To protect themselves from this possibility, the traders can do the following:

Go through the team members’ sections and check everyone’s background. They must have a social media presence and a credible profile.

Read the project’s white paper and roadmap to gauge its scope. Check if the project’s intentions are genuine or if it’s an eyewash. 

If possible, try to check whether a third party is auditing its codes or not. This would tell if the project is paying attention to its security framework. 

Usually, fraudulent projects don’t focus on minute details. Thus, one can find many typos on the website, whitepaper, and other market materials. 

Factors About ICO That Crypto Users Must Know

Token Management

The token sale mostly takes place on the ICO website. Interested buyers can get them via other cryptos or fiat. If the project is successful, the team lists the tokens on one or multiple exchanges. After that, anyone can buy that token at its current market price. The benefit of buying tokens in ICO is that they’re available at a cheap price during the event.

If the project becomes popular, the early investors turn a profit. In most cases, they sell these tokens to get quick returns. Notably, a large number of ICOs failed to perform after 2018. Though they continue to exist today and once in a while, they register scalable success too. Every project is launched with a total supply of tokens.

They are released over a period of time with multiple phases of token sales. The tokens are strategically distributed among the team, investors, and other ventures. 

White Paper

All the details of the ICO project lie in this document. It talks about the technical, financial, and management aspects of the business plan. The comprehensive analysis shows how the project is useful to its target audiences. 

Marketing

Entrepreneurs launching an ICO have to run a full-fledged marketing campaign for its success. Besides the regular methods, projects also use specific gimmicks like airdrops and bounty campaigns. 

ICO investment is risky but it may ensure great profits too. The investors need to be very prudent and careful about the details when picking the project. If they’re able to identify a reliable and fruitful project, it could open new avenues for profits. 

Nancy J. Allen is a crypto enthusiast, with a major in macroeconomics and minor in business statistics. She believes that cryptocurrencies inspire people to be their own banks, and step aside from traditional monetary exchange systems. She is also intrigued by blockchain technology and its functioning. She frequently researches, and posts content on the top altcoins, their theoretical working principles and technical price predictions.