One of the biggest attractors of money and investors to the cryptocurrency world which has seen an influx of tens of Billions of Dollars in fresh funding within this year alone has been Initial Coin Offerings or ICOs. The industry has grown by leaps and bounds over, presently boasting of over 1500 different cryptocurrencies that are currently floating on the market.
ICOs are the new wave and the rate at which new ones spring up here and there has raised concerns among industry and watchers and regulators alike that there might be some unscrupulous elements that are trying to capitalize on the massive appetite for new cryptocurrency startups in order to make a quick buck at the expense of investors. So what are ICOs, what makes them different from buying Stocks and IPOs and how does one get sure that an ICO is the real deal?
Whats an ICO?
This is the new crowdfunding-like way for cryptocurrency and blockchain technology startups to raise money for their ventures by accepting funds from the general public, usually in the form of other cryptocurrencies like Bitcoin and Ethereum in exchange for certain amounts of their new cryptocurrency when it finally comes online.
ICOs are completely unregulated much like the other aspects of the cryptocurrency universe and is driven by the sheer demand of people who are out to find the next big thing in the cryptocurrency industry like Bitcoin or Ethereum. Initial Coin Offerings also draw multitudes that bank on the hope that once the new cryptocurrency becomes fully functional, its value will rise and they could easily cash in the huge profits within a very small period.
What differentiates an ICO from an IPO?
There so many things that make an ICO a whole new universe unlike the traditional IPOs that we are all familiar with, these include:
Different Commodities: For starters, ICOs and IPOs deal in two distinct commodities with different patterns of behaviors and different risks. Whereas IPOs offer investors to be a part of an already established company with physical assets and often tangible products on sale, ICOs completely reside in the virtual realm as even the cryptocurrency itself exists only on a computer network, it cannot be felt or touched and its value is solely driven by the perception of its use the general public has.
Regulatory Framework: IPOs are an established part of the investment world that has decades of regulatory framework and antecedents for punishing those who break the rules, ICOs and the cryptocurrency industry as a whole are totally new phenomena with virtually zero regulations. Due to its highly disruptive and decentralized nature, ICOs are a nightmare for Authorities to control as they do not fit into any currently known financial or securities regulations that are working in the world.
P2P Markets: Whereas anyone interested in buying into an IPO needs a registered stockbroker to file and make their purchase, ICOs like everything in the cryptocurrency world are complete without middlemen which only make them even more attractive to buyers. The exclusion of middlemen means fewer costs for the subscribers who eventually can also directly sell in the future without resorting to middlemen also.
Flexibility: One of the great things that ICOs and the cryptocurrency industry has introduced to the financial investment world is the absolute flexibility that ICOs and cryptocurrency trade gives the user. Unlike stock trade, the cryptocurrency industry allows for fractional transactions, as a buyer or seller can easily trade a certain cryptocurrency to several decimal points. Stocks, in general, have to be traded in whole numbers and often there are minimum set amounts that a user is allowed to trade. With ICOs however small your volume might be, you are free to buy or sell.
Why Are There So Many ICOs?
The year 2017 has seen an incredible explosion in the number of ICOs offered so much so that barely a few days pass without one coming afloat in one country to another. It can be argued that the reason for the explosion in numbers might be connected to the countless applications that the blockchain technology seems to have, as every ICO comes with a purported problem it aims to solve. But a more accurate reason will be the ICOs are coming afloat due to the insatiable demand for startups with ideas that could possibly explode on the world market. Bitcoin started trading at its inception at a little less than the dollar, and within this year alone it has reached prices of up to $8000 per unit with experts predicting even more explosive growth in the time to come. Demand for the possibility of discovering the next Bitcoin is exceptionally high and as such the supply naturally comes to satisfy said demand.
How do I Know the Right ICO to buy into?
With so many ICOs coming online, it is easy to get lost in the clutter. The safest way to determine the veracity of an ICO or its lack of is by carefully studying its “Whitepaper”. This is the blueprint document that outlines the vision of the new cryptocurrency, the problems it aims to solve and the methods and technology it is going to use in solving those problems. A good ICO is backed by a solid vision and an actual tech to bring it to life. Also, check on what kind of team is bringing the ICO online and do a thorough research on their antecedents in the industry. It will also be helpful to search across forums like Reddit to see what ardent crypto followers make of your prospective ICO. Chances are that if there are too many alarm bells being sounded about the ICO in focus, that it is not too safe to bet heavily on it. Apart from this pray for a lot of luck as the cryptocurrency industry can be very unpredictable sometimes.
What do I Get when I buy Into an ICO?
In exchange for your fiat money or other cryptocurrencies like Ethereum or Bitcoin, you will be given an early shareholding in the new crypto startup. This could come in the form of Tokens or Credits that will eventually be exchanged for the actual cryptocurrency units when it comes online.