What are ICOs and How Do I Invest in One?
An ICO is an “Initial Coin Offering,” which is sort of like an IPO – except this time it’s for coins. Another difference between the IPO, “Initial Public Offering,” and an ICO is that anyone can participate in an ICO. This means that you don’t need to have $300,000 to be an early invester in the next big idea! You can simply buy a tiny little slice – sort of like a blend of investing and crowdfunding. ICOs have a variety of different courses: some coins will run them for a certain amount of time, some will run them until they have raised a certain amount. The question we ask is: “How can you tell which ICOs are the winners and which will be a bust?”
Now, as opposed to receiving a share in this company, an early investor will actually receive a “token,” which is more like a share. Then, after they raise the amount of coins they want to, or they reach the end of the period of time they have allotted, they divy up the currency to people based on the amount of tokens they hold. People purchase these tokens at literal pennies on the dollar, and the examples are endless. The trick is to pick the right project to invest in – A.K.A. “the next big thing.”
What Do you Absolutely Need To Know?
- A new group of developers announces their project and set a date that they will begin raising funds for their project. At that time they will begin collecting bitcoin or ethereum (typically only those two,) and give the early investor a token in return. The developers then have the ability to expand on their project and improve the technology so the coin will be successful upon release and continue to improve from that point onwards. When the new project launches the early investors are able to exchange their tokens for a corresponding amount of coins that are now (hopefully) worth more than the tokens were.
What They May Not Be Telling You
- You will not receive the actual coin when you contribute to the ICO, you are receiving tokens that represent a share of the total amount of coins being offered.
- You are usually going to be sending bitcoin or ethereum in exchange for these tokens, which means that you are exchanging an established coin for a token that may have no value in the end.
- MAJORLY IMPORTANT to send in your ethereum/bitcoin from a private wallet, not from an exchange or any public marketplace. Why? Because you don’t have the private key when you send it from those places, and sometimes when the ICO ends and it’s time to claim your coins you need to have that personal key.
- You don’t get your coins until the ICO ends.
How to determine if you should invest in an ICO
1. The first thing that everyone agrees is most important, is the team. The people who are behind the coin. Who are they? Are they well-known? Big names in the tech-world? Or are they shady scam-artists? Absolutely do research and go with your gut. This person should have some interviews out somewhere – if it’s a legitimate coin that the team cares about, then they will be out promoting it! Check to make sure that there are enough people who are actually working on this project, and that they have people covering every base when it comes to launching a new blockchain.
2. The second thing is sort of a summary of points I’ve seen being made, and that is: function. What does this coin do? You definitely do not want to invest in a coin that has a catch-all, vague description and no interface. Examples of good coins that have a purpose are things such as WAVES (crowdfunding for ICOs;) or STEEM (Blogging to earn;) or the recently successful BAT (Basic Attention Token, created a web browser.)
3. Aesthetics and professionalism do matter. Really good websites, easy to read and detailed instructions, transparent whitepaper and roadmaps; all of these things are signs that this is a serious venture with real people putting 100% effort into it. A safe coin to invest in will have videos that are well-made, a clear and easy to understand bounty system, and be active on all social media. This sounds like a vapid way to judge a company’s merit, but it’s very practical when you reason that people will put forth their most professional efforts when they really care.
4. This is sort of like the one above, but a little bit different: community. Is this growing in popularity? Is there more and more press for this coin? Are you seeing ads and articles all around? When a majority of the worth of the token is going to come from the amount of people that also invest in that coin, then looks matter. That being said, it’s very important to check that there is substance behind all of the hype. There should be an equal (at least) amount of energy put into the product as there is being put into the ICO. Find a happy medium: a large enough fan base to get the coin moving after the ICO is over, but substance and hard work behind all the shiny graphics.
Initial coin offerings appear to be getting a lot of hype and there is good reason, but there’s also a lot to be cautious about. Just make sure you are very, very meticulous with your research when it comes to investing in these potential hot items. Resources posted below!