25 June 2020
What Are ICOs And What Should You Look Out For?
ICO stands for an initial coin offering. This is the method that many new cryptocurrencies and crypto-related companies use to raise funds and introduce their tokens to the world. The cryptocurrency or organization will typically provide detailed information, such as a whitepaper, to show why individuals should invest in their coin.
The team behind an ICO will ask for investments in the form of fiat or cryptocurrency, depending on their preference. In return, you receive their new token or coin. You hope that the project will do well, causing the value of the new token to rise and earning you a potentially massive profit.
It Does Not Automatically Include Ownership Stakes
If you are looking at an ICO from the perspective of an initial public offering (IPO), keep in mind that there is one key difference: ownership. While IPOs give you a stake in ownership, ICOs do not automatically do so. Some ICOs will give you voting benefits or something similar for owning tokens, but this is not always the case.
Before you invest in an ICO, you must do some research. There are a few reasons for this, including the potential for scams and letting you better judge the project’s potential success.
Because there is currently no regulation for ICOs, they are an easy way for scammers to receive funds and offer nothing in return. They can take your money, with or without giving you a worthless token in exchange, then disappear. Since most funding of ICOs is done with cryptocurrency and all cryptocurrency transactions are final, you would not be able to simply reverse the transaction and get your funds back. They would be gone.
By researching an ICO, you can confirm that it is legitimate, and its team will not just take your money and disappear.
The other crucial reason to research an ICO is to determine the potential of the project and whether you think it will be successful. After all, if the project fails, your tokens will be useless, and you will not get any return on investment. On the other hand, if the project excels, your tokens could dramatically rise in value.
What To Look For In An ICO
To help guide your research, be sure to pay attention to the following factors. For each of them, there are some warning signs that you will want to look out for.
Basic Information Available
Start by looking at the ICO’s website and looking for other documentation, such as a whitepaper. You want to see evidence of well-thought-out ideas. Look for details like goals and a project roadmap.
Be very cautious of ICOs that have little to no available information. Most companies will have a whitepaper by the time they begin their ICO, with some also having other documents like one-pagers to quickly summarize the whitepaper. If the ICO does not have a whitepaper and its website is bare, avoid investing in it.
However, if the ICO does not have a whitepaper yet, but one is coming soon, and there is plenty of other information available, you can keep the ICO on your list of potential investments. Ideally, you should wait to invest until you read its whitepaper.
Information on the Team
Privacy is a big appeal of cryptocurrency and blockchain, so not all ICOs will provide extensive information about their team members. The best ones, however, recognize that they will need to give up some privacy to have a successful ICO.
The best options for investing will be ICOs that have clear information on leadership roles, including their past work and successes.
Look Out For: Take a moment to rethink investing if the ICO has no information on its team. Similarly, if the ICO lists names but you cannot find information on any of them, be wary.
You will have to use some level of judgment for this, as some ICOs will keep their team’s information secret for privacy reasons. In that case, you must recognize that the investment is a risk.
Clear Goals and Road Map
Finally, make sure that the ICO has clear goals in place as well as a road map to help it achieve those goals. These two factors will increase the ICO’s chance of success.
Look Out For: If the ICO has no goals or vague goals that cannot be easily measured, be wary. This is especially true if there is no roadmap or plans to achieve those goals. Lack of planning reduces the chances of success.
With research and some luck, ICOs have the potential to give you a great return on your investment.