Guides & Analysis

What are ICOs?

Business start-ups and new application ideas are nothing new. Anyone with an idea and the desire to create a service that uses the idea can create a start-up business. Like all businesses, start-ups need investment in the initial stages.

The thing that is newly related to business ideas is how the creators and founders raise money. The newest method is ICOs, or initial coin offerings. ICOs are currently enjoying widespread popularity because they help raise a lot of money very quickly.

They also allow investors to make big money.

The Idea of ICO

ICOs are quite similar to IPOs. The difference between the two is that ICOs give tokens to investors before the project goes live. These are tokens of cryptocurrencies which are central to the working of the business. So, investors can buy the tokens before the project goes live, and then sell them later when the price of tokens surges due to increase in demand. Most ICOs use Ethereum.

Why People Invest in ICOs

ICOs are the hot topic these days. People see how much money there is to be made by being a part of this process. There are many start-ups that rely on cryptocurrencies these days, and many new cryptocurrencies spring up now and then. All these hosts an ICO which attract investors in great numbers.

After seeing the $232m worth of Bitcoin and Ether that Tezos blockchain project ICO raised, as well as $153m worth of Ether raised by Bancour in its ICO, creators and founders all over the world know that hosting an ICO is the best way to earn quick money. They offer tokens before they become available to the general masses, with the promise that the demand for the service will surely rise. As the demand for the service rises, the demand for tokens, which are intrinsic to these services, also rises. Those who purchased these tokens for peanuts then sell them at highly inflated rates, and churn out huge profits.

Investors are so interested in ICOs because of the money that is involved. The key is investing in a cryptocurrency project before it launches its ICO. This gives the investors an edge, because they already have tokens. As the service later booms, they can sell their tokens at great profits. Many such projects are popping up all over the world, allowing people all over the world to earn quick and good money. Investors get the returns on their investment when the service picks up demand and the value of the tokens rises rapidly. The creators and founders of the project get their funding in a matter of hours, since ICOs are so popular these days that investors flock to buy the tokens.

The Risk Involved

There’s no denying that the world is going gaga over ICOs at the moment. But the skeptics only have to point to the dotcom boom of the 1990s to make a case against ICOs. In that era, there was a similar booming of investment in new companies and web services that were coming up with real pace. A lot of people invested heavily in different companies, and many of them lost everything when the service later failed. The situation with cryptocurrencies and ICOs, according to critics, is quite similar.

 

While there’s a good chance to make a large amount of money quickly using an ICO, there’s an equal chance of losing all that money, and possibly more, when the service later fails to deliver as promised by the creators and as expected by the investors. After all, the services that launch these ICOs only have a concept in mind. There’s no fool-proof plan in most of the cases that the service is something that will definitely sustain itself.

How to Invest Smart

As with any other investment, you have to be careful when partaking in an ICO and purchasing a whole bunch of tokens for a service. You most definitely have to do your prep work so that you gain on your investment. A few things that you should keep in mind before investing in an ICO are:

  1. Understand what the service is about and see how strong a business model it is. Understand if there is a proper requirement for the service that will use the ICO funds. If you see that there’s a good market for that kind of service and there is a good business plan in place, then you can invest in the ICO.
  2. Make sure that the cryptocurrency token that you buy in the ICO is integral to the functioning of the service. If this is not the case, you can easily end up a loser even though the service thrives in the future
  3. Invest only if you have the funds required to put in the ICO, and make sure that you never invest so heavily that it could ruin you. ICOs can turn any amount into a huge profit, so the higher the investment, the greater the profit. But this is a double-edged sword, and could quite easily bankrupt you if you’re not careful.

Initial Coin Offerings are enjoying widespread support and backing from all over the world. A majority of the cryptocurrency funding comes from China. This is despite the ruling by the People’s Bank of China a few days ago. The PBoC’s ruling makes it illegal to raise funds by launching a new cryptocurrency and using an ICO to get the funds. Those who have done so are required to return the funds to the investors.

This ruling came as a setback to many, but experts all over the world have come out in support of ICOs, and said that this ruling is merely an attempt to understand ICOs better. Banks and regulators want to understand how this works exactly so that they can put regulations in place to prevent the interests of investors and prevent foul play. When they realize that it is a service that has many more merits than demerits, experts believe that the process will gather even more traction.

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