Nonetheless, not all traders and investors know how to choose a trusted ICO. Hence, it’s important to comprehend the risks involved before putting your money down. While this system makes it easy for coins to gather their initial funds, it requires a good understanding of a cryptocurrency and its white paper.
What is an ICO?
Initial Coin Offering (ICO) or Initial Public Coin Offering (IPCO) is an unregulated means through which cryptocurrency startups raise funds for a new cryptocurrency. This system allows them to avoid the difficult processes involved in asking banks for start-up capital. An ICO campaign usually involves exchange of some percentage of their coins for Bitcoin
or any form of legal tender. Such startups make use of a whitepaper to explain their project and its purpose. The whitepaper also includes details of the funds needed for the project to achieve its aim. Traders are interested in ICOs because the market at this time has a high level of volatility which offers assets at an impressive price. Equally, ICOs are somewhat related to crowdfunding in that ICO backers view them as crowdsales that can increase the value of their investment. As ICOs are innovative tools that differ from the regular means of fundraising, they are unregulated and subject to frauds. Some fraudulent individuals come up with cryptocurrency ventures and use them as opportunities to steal funds from initial backers. With the promise that the investment will make returns, backers often put in so much, only to lose funds which financial authorities can’t reclaim.
Why People are Interested in ICOs
ICOs are alternatives to getting funds from venture capitalists and angel investors who often require some share of your company’s ownership or equity. People are keen on ICO campaigns because they enable them get the best of token offerings before they launch on crypto exchanges and require transaction fees and other processes. More so, ICO aren’t regulated or managed by any decentralized authority. This agrees with the goal of most cryptocurrencies on the blockchain network. And interested investors enjoy the possibility of gaining access to projects by investing their money into the team and the coin. With your funds, you can get tokens which allow you access to some platform features such as DAPPs.
How to Choose a Trusted ICO
Based on a recent study by Satis Group LLC based in New York, about 80% of ICOs are scams and less than 10% of all ICOs move to the actual trading stage which involves exchanges. This research was carried out using publicly available information and it focused on ICOs with low market capitalization. After grouping them into six groups, the study found that some ICOs didn’t list or get to trade while others succeeded and moved to cryptocurrency exchanges for trading. With the type of study above, it remains clear that it’s difficult for many individuals to choose a trusted ICO
. On a monthly basis, ICOs are released in their hundreds leaving many investors skeptical about which ones to choose or trust. Because the funds made during ICOs are usually astronomical, novice startups are typically more interested in how much they can make than in learning how to do things right. Before you choose an ICO, find out the following:
- Is it transparent?
- Does it tell a clear story about its project?
- Does it take the opinion of the investing community?
- Does it provide precise steps that help you know how to get involved?
- How does it solve problems or fix errors related to tokens?
- Is there a maximum limit of tokenswhich investors can buy?
- Does it regard all investors equally?
ICOs are great platforms for both investors and cryptocurrency startups. While it presents project teams with the funds they need to give life to their ventures, it allows investors and traders to send their funds in exchange for tokens to build applications using blockchain technology. Above all, take note of all the factors discussed in this post for choosing a trusted ICO and avoiding scams