During the last quarter of 2017, ICOs or Initial Coin Offerings made the headlines in the cryptocurrency newspace. This innovative way of crowdfunding utilizes virtual coins and tokens to promote products and new technologies to the early supporters of a company. ICOs are commonly initiated by blockchain-based businesses to secure start-up capital that will eventually be used for the development of their products.
If you are currently looking for opportunities to venture into ICOs, you must first exercise your due diligence to do your own research and to always manage your risks. Meanwhile, here are five things that you should know about ICOs.
- The tokens will not be treated similarly as conventional financial start-up models.
One major difference between ICOs and the traditional initial public offerings and capital ventures is the way that crowdfunded money works in the two different systems. In conventional start-up models, early investors will get equity in the form of shares in exchange for money. In ICOs, early investors can buy tokens at discounted rates. These utility tokens are used to secure blockchain ecosystems and may increase or decrease in value with reference to the original price after some time.
- There are great opportunities to profit as an early investor. There are high risks as well.
As an early investor in ICOs, it will be easy for you to gain massive profits of up to 100 times or more of your principal in just a short amount of time. There is a greater chance to get these kinds of opportunities in projects with promising technologies, strong teams of developers, and supportive communities behind them. However, losing big in ICOs is also highly possible if the project turns out to be a scam or if the technology is not delivered as promised.
- The real value of ICOs lies within the white paper.
During the promotion of ICOs and their technologies, start-up companies also disseminate information materials in the form of a whitepaper. This document contains all relevant information regarding the ICO including the purpose of the token, schedule of the project, future plans, the team, and other related things. The key to managing your risks in ICOs is to read the whitepaper from cover to cover. A project with a potential real-world application is a good one to invest on while errors and inconsistencies in the content of a white paper can be warning signs of a bad ICO. Check out Crypto Coin Authority’s best ICOs for 2018 guide to know more about some good projects this year.
- ICOs are still continuing to grow.
Any cryptocurrency enthusiast might be quick to assume that ICOs are currently experiencing a decline in this ongoing multi-month bear market. But the opposite is actually what is happening right now. The total value of raised money in ICOs in Q1 or 2018 alone has reached more than $6 million, way above the $4 million mark of ICO inflows for the entire year of 2017. With a lot more projects that are currently in the works, the future still continues to look bright for ICOs.
- There will be an emphasis on ICO regulations.
Because of the value tied with ICOs, these innovative financial models have turned heads from different governments worldwide. Some countries have imposed a total ban while others favored a tighter regulation. Other countries such as Japan, Switzerland, and Singapore have been very receptive to the development of blockchain technology in their countries. Most ICOs today require KYC (know your customer) procedures from their clients in compliance with the regulations of the governments.