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What is an ICO?
What is an ICO?
Table of Contents
Let us define ICO
An ICO (Initial Coin Offering), is a financing method that allows Blockchain and cryptocurrency project teams to raise funds to carry out their starting projects and grow them.
In an ICO, the team in charge of the project, issues a blockchain-based token. This token is a cryptocurrency, and its value can grow over time, thus giving many profits to those who believed in the project from the beginning and invested in it.
ICOs are the financing channels for projects in the era of decentralization. They are a way of “crowdfunding”, which means that those who invest in the project are the masses, ordinary people, and not necessarily the big banks or elite investors, although most recently the latter tend to get early into these projects.
How were ICOs born?
In 2014, Ethereum was born, and this project not only served to redefine blockchain technology, but also to redefine traditional financing.
The creators of the project mined the coin in advance. This is because the project would not be put into operation until 1 year later. These coins that were pre-mined, instead of saving them, they put them up for sale in order to finance everything that was missing from the project.
Through this ICO, Ethereum managed to raise $18 million dollars.
In 2015, Ethereum made public its smart contract software under Blockchain technology, which would allow any entrepreneur or connoisseur of the subject to create a new project based on Ethereum, and mine all the necessary tokens to have their own ICO. This started the ICO boom in the market, especially from 2015 to the end of 2017.
Types of ICO
There are different ways to make an Initial Coin Offering.
To begin with, the ICO can be classified on whether the project already has launched and has an operating blockchain, or if these funds are required to continue developing the blockchain technology and it will be launched later on.
In the first case, if there is already an operating platform, users will be able to buy the project’s native token, and these will be sent to their blockchain wallets.
In the second case that the project has not been launched yet, the project team will ask its followers to invest by buying tokens from an already established network such as Ethereum (ETH), and later, when the project is launched, they will be able to opt for an ETH swap with the newly issued native token.
ICOs can also be divided according to the technical standard that is used to issue and implement these tokens. The most used standard is the ERC-20 used by the Ethereum chain. Apart from this standard, there are others known as Waves, NEO, NEM or Stellar.
Are there any risks when investing in an ICO?
This is a topic that can have multiple answers, and many different opinions. The first and most important thing to consider is that any investment in a new project, which has not yet proven its practical utility or safety, carries a high risk for the investor.
It is really difficult to determine whether a project will be viable or not. If you want to invest in an ICO, you must do your due diligence first, and do a thorough research on the project and the tokens you are considering. Ask yourself the following questions:
- Is the concept viable?
- What problem does it solve?
- Who is the team behind the project and do they have a good reputation?
- Who else is investing in the project?
- Can I find verified Twitter accounts of people that I admire and are successful in this field ,who are also supporting the project?
Now let’s consider the multiple possible outcomes when investing in an ICO.
First, and the best scenario, is that your investment multiplies a lot over the years, and your return on investment (ROI) is a total “homerun”.
Second, it may be that the project never takes off, due to lack of utility or support, and after a few years you have less money than you put in or about the same.
Third, and this is where the idea is no longer so attractive. It may be that the project loses so much support, that the value of the token is devalued more and more, and you lose a lot of money.
Another even worse scenario (although it has happened many, many times already), is that the security of the cryptocurrency, or rather the blockchain on which it was built, is weak, and hackers can successfully steal most or even all of the money.
As a last possibility, the team behind the project could literally vanish overnight, and with them, all your money. If that happens, it becomes a very difficult mission to recover that money. (This has already happened multiple times too)
Why would it be so difficult to get that money back?
You have to consider that the creators of blockchain projects are distributed all over the world, so it is very difficult to keep track of who stole the money.
Another important point to consider is that since this industry is still relatively new, there is still no clear regulation on ICOs or other new products.
Neither countries like the United States or other European nations, have yet been able to regulate the activities of their citizens in the creation or investment of ICOs.
In conclusion,
Never, we repeat NEVER, invest money that you are not completely willing to lose, into an ICO.
Second, do your research using all possible resources, including trusted websites, and trusted Twitter accounts.
If you are going to invest in ICOs, we recommend (although not financial advice) that the total amount invested in these projects never exceed 10% of all your investment assets. And we mean all ICOs together.
Investing is a great thing, it can generate profits that you never imagined, but always keep in mind to have an investment system in place that controls your emotions and controls the risk of losing everything in a single bet.
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