Everyday we hear ICO this, ICO that. In addition, we get to hear about huge loads of money when in a few days, young projects raise $50M, $100M, $200M and even more.
But instead of successful ICOs, we hear more often about scammers and deceived investors. So what exactly ICO is: a new investment method, a quick profit, or is it a scam?
What is ICO
The term “ICO” is derived from “IPO” (Initial Public Offering).
ICO stands for Initial Coin Offering. The main differences between ICO and its predecessor IPO is the absence of strict government regulation, which is typical for IPO and any other public financial and investment activities. As well as the absence of legal rights for the token buyers.
Holding ICO is similar to the securities placement on the stock exchange or raising money through the crowdfunding. In exchange of cryptocurrency, the investors receive tokens from the company, which is essentially another cryptocurrency. In the future, tokens will be tradable for a product or service of this very company.
Apart from this, in time, tokens will appear on cryptocurrency stock exchanges. There, they can be sold for fiat money or other cryptocurrency.
How to profit from ICO
The majority of investors invest their funds in order to profit from tokens once they are registered on stock exchanges. Usually, when a token begins to get listed on stock exchanges, it is sold for a higher price than its initial cost during ICO. This way, it is possible to receive 200% or even 300% of the original investment.
However, there’s been a change in trends recently. When a token is introduced to a stock exchange, it will remain the same price at its best, or it will drop in price at its worst.
This is due to the fact that there are more and more ICOs, and they don’t catch up with the high standards. Only a few projects possess a truly worthy idea and a team that can execute it perfectly.
ICO and scammers
Nowadays, ICO gets to be blamed for scams too often, and most of these accusations are justified. Just like that, Vietnam authorities are searching for the founders of a company called Modern Tech. They managed to rack up $660M while holding two fraudulent ICOs, having left 32k investors with nothing. And then they disappeared.
The fact that anyone can hold an ICO using only a website and a token has played a cruel trick for the idea of Initial Coin Offering. It is very hard to distinguish a legit project from a fraudulent one. You can’t even exclude a possibility that the raised million dollars will not twist the minds of the ICO managers, resulting in a swift escape with all this money because it’s just way easier than to deal with investors’ expectations.
In conclusion, let’s consider the pros and cons of the Initial Coin Offerings.
The appearance of this type of investment has become a breath of fresh air on the market where young startups have received an opportunity to raise funds for their development without bureaucratic procedures, bowings before bankers, and large advertising budgets.
The downside of ICO is its complete absence of any rules. Choosing the trustworthy project that won’t turn out to be a scam and bring in profit is similar to walking the minefield.