Is the ICO the perfect model to raise fund for initiating a crypto project
Entering cryptocurrency is a good opportunity to earn rewards (although it has its risks), but to make the first step you need to invest some money. And unfortunately, not many have the funds to make that step in the first place despite their unmatched desire, their efforts and the help they receive from their friends and their families.
As the saying goes: there’s always another side of the coin. There are experts who gave thought to this matter and came up with a solution on how you can gain those funds to initiate a cryptocurrency project and it’s called ICO.
This brilliant, new and fantastic funding method has been proven so effective in recent years and up to the present the amount of money raised through it went over 13 billion American dollars in the past three years. In fact, only during the 2018 half of this amount was collected.
However, in spite of being a genius idea, in order to earn from it a deep understanding and a unique sense of cryptocurrency and dominant trends in this yet not completely undiscovered area. This is only found among a group of experts whose advice can lead to informed decisions and ultimately at a rewarding investment.
Our experts keep you updated with the latest trends in cryptocurrency and provide you professional guidance to enable measure the risks of investing and calculate the chances of collecting gains. We have established a fantastic IT infrastructure to keep your security at the highest level and offer you the best experience in cryptocurrency.
Down below, our team of experts explains ICOs and very essential things you need to know about them.
Before explaining in a section below what are ICOs, let us a give some historical context at which this fundraising mechanism was introduced in cryptocurrency and how it developed to become such popular.
The ICO model of fundraising began in 2013 when many projects aimed to collect a large number of investments from people who would receive tokens in return. Using this mechanism Ripple collected a total of 1 billion XRP tokens and gave them to investors in exchange for bitcoins. Ethereum, on the other hand, collected over £18 million in 2014, the highest amount of collection recording that time.
The DAO project made an appealing boost to the way ICO were designed. Their model applied in the Ethereum blockchain was distinctive because its token holders also had their word in the governance and this was, to a certain degree, a great assurance that you’re not investing in a scam project.
Basically, according to your investments in the DAO’s ICO, you would be provided a vote which could later be used in specific blockchain discussion, e.g budgetary plans.
The project was claimed to be very successful as it got $150 in the stock, but a mysterious hacker drained millions from this fund and Ethereum had no control of it.
After this bad event many really thought that ICOs would “kill” the Ethereum, particularly because of frequent ICOs, but actually, developers think that it is easier for them to create a cryptographic token using the infrastructure of Ethereum’s blockchain.
What is an ICO?
ICO stands for Initial Coin Offering and it’s a new way to accumulate funds for initiating a blockchain project by supplying investors with tokens. Blockchain platforms the sorts of Ethereum, NEO and EOS are most frequent for launching an ICO.
The idea behind ICO models is interesting, though it implies several investment risks to participants. So this is what basically happens. When the projects are founded, its creators invite investors to buy specific cryptocurrencies of that particular blockchain currency e.g bitcoin and in return investors will receive cryptographic tokens which can be used as utilities or services.
We encourage you to don’t think of tokens as direct profits. For example, if you’ve been allocated some tokens, you can use them to get free access to specific services of that particular blockchain, e.g you can watch live-stream videos.
In more simple terms, it is a form of agreement where you help someone create a company and in return, you get services for free. Imagine you want to open a bar and you ask your friends for many so when you start your business your friends can have a drink for free every day according to how much they shared with you.
In line with this, ICOs are pretty similar with Initial Public Offering IPO where investors share the capital of an existential company according to their contribution.
But, the ICO has a lot of benefits and it’s not surprising it is becoming such a central topic of discussions in cryptocurrency projects. However, there are risks at the same time you must be aware of as we will explain down below.
One of the benefits that ICO grants to a blockchain it’s the fact that a smart contract is attached to it to control and execute the conditions and terms of the ICO upon which all investors are agreed.
ICOs are still not regulated in a global level and conditions applied to it vary greatly from a country to another one.
There are some places including here Malta, Switzerland and the Republic of Singapore where the ICO issues are conditioned and therefore it is more applicable.
In line with this, the heading team of a blockchain project which uses ICO funding method doesn’t permit investors from foreign countries where ICO is not regulated by law to participate in their project to avoid their confrontation with the law in that particular country where the investor belongs to.
For this purpose, ICO blockchains apply verification means known as Know-Your-Customer (KYC) and Anti-Money-Laundering (AML) to get information about the citizenship of a prospective token sale participant.
Tokens that are issued to you as an ICO participant are mainly in the form of utility or dApp tokens. If you invest in a particular company, you’ll be given tokens which you can later use to gain benefits in terms of having access to that company’s services.
Aside from utility tokens, there are also security tokens issued to you as an investor. The difference is that with these coins you are granting access in the decision-making process at the company because your tokens equate voting rights.
Is everything perfect about the ICO? Like everything else in this universe, ICO has its own issues that we need to be aware of to be able to avoid unwanted situations.
So what are the issues with ICOs?
In recent months, ICOs had hardships to raise extra large funds as intended with exemptions like TaTaTu which haven’t still started issuing tokens to their investors.
Many investors end up disappointed as they saw the market environment was not friendly and didn’t favor them leading to huge losses. For some, this unpredicted loss was even more hurtful than the rest as they reported to have lost around 99% of their investment.
Apart from the market conditions, an accentuated lack of awareness and proper information of these investors counted for their losses. Quite often these misfortunate investors were the victims of fake ICOs.
This will make you appreciate the importance of a risk management strategy and a set of information you need to have in advance to avoid such a scenario.
This doesn’t necessarily mean you’re required an outstanding expertise because in the end risk is an inherent part of the cryptocurrency investment. But proper information and knowledge can help you evaluate the risks and point you to a more informed decision and can increase the probability for safe investments.
Keep in mind that you always have to read carefully “the whitepaper” a document written by project’s creators where they explain into details the ICO terms alongside the central purpose of their project and ways those goals will be achieved. If the idea of the project seems unreal, it is a strong hint that you must stay away from that project.
Next, you can visit the social media profiles of creators and get a sense if they are real cryptocurrency experts or just fictive people trying to steal money from you.
In normal conditions, under the ICO terms section, the creators explain you the risk associated with your investment and you should always give a look to that part of the project before moving in to invest. If such thing is stated explicitly and you end up losing your investment you have no legal rights to raise this as an issue.
Will ICOs be regulated by law?
As we said there’s still no firm and universal law regulations about ICOs however regarding the trends in the cryptocurrency space it is highly possible that such things will happen soon.
There are a lot of unwanted events that captured this part of blockchain technology, including here the suspect fraudulent activities of an ICO platform created by the famous boxer Floyd Mayweather in 2017 and which collected a fund of over £30 million. Events like this make the need for law regulations inevitable.
A few countries have already given signals that they will set the juridical basis for modeling and fundraising in ICO. An example of this is the US Securities and Exchange Commission (SEC) which has brought into power some rules and criteria aiming to make ICO safe and legal.