Initial Coin Offerings, or ICOs are potentially very profitable blockchain investments. Due to their popularization along with blockchain technologies, this article will attempt to give some insight into what ICOs are, and how they operate, as well as a few tips for those that don’t know much about them.
Debunking ICOs
An ICO, similar to an IPO, is when one invests their cryptocurrency into a blockchain project. This is very similar to crowdfunding, in the sense that ICOs require for people to believe in the project, and the product which they are trying to deliver. Now, you might've heard about something known as a whitepaper. This is, or at least should be a very detailed plan of how the product works, and how the company plans to bring it to market, scale it and produce it.
With the right resources, anyone can start-up an ICO.
Upon having sent the crypto, the investor will receive a certain amount of ICO coins, these are coins which back up the project. At first, these might be worth nothing. As the project gains traction and popularity, the coin will (hopefully) gain value. However, this is only possible if the coin directly serves a purpose to the project. For example, UnikoinGold is a cryptocurrency which is used on an eSports live-betting website. This token is purchased with fiat and used to bet on live eSports games. The token can also be used in exchange for virtual in-game “skins” which change the appearance of certain game elements. These goods also have real-life fiat value, but instead an easier crypto-alternative is offered on this website.
Here we can clearly see how Unikrn is using their token directly on their already existing product.
One cannot simply create an ICO, create a token and expect it to gain value or be profitable… or can they?
Avoiding Scams
Turns out that some people actually do just create tokens out of thin air, publish their ICO and ask people to invest, and promise ROI precentages in the hundreds! This turned out to be profitable, as some people actually did invest in these scam ICOs, so more and more are popping up all over the internet. You might see these published on crypto-related forums such as https://bitcointalk.org, or on public crypto-related chatrooms on Slack or Telegram.
Pro-tip: Don’t bite the bait.
One should always be wary of such scams, by being thorough with your research and retaining a certain degree of skepticism. First of all, let’s return to the aforementioned whitepapers. These should be examined very well, from the format and how good it visually appears, to the content that it actually displays. A well thought out plan should be in place, with a clear roadmap and goals for the team working behind the scenes.
Second of all, one should also look at who is on the team. Do these people have credibility? Any academic or other achievements? Remember to stay critical. A good LinkedIn profile is always a good sign.
And lastly, the product itself. Is it relevant? Do people NEED this? How many will be willing to adopt it, and how will it fare against its competitors, if any. What market does it target, and what is its target population? These are questions which are essential to any product.
Okay so… Make me rich!
I am, of course, not implying that you should start investing all your life’s savings into ICOs (although you might get lucky!). There is no guarantee that any of the money spent will ever make it back into your hands. An ICO is not an oven, where one puts their dough (money) and comes back to an expanded loaf of bread. The key word here is "investment". You should always invest in what you believe will take off, and what you believe will attract the masses. The right product at the right place and right time. In the same way that you would not start buying up stocks and shares of any random company, you should also not go around splashing money on any random ICO. Don’t invest more than what you can afford and keep your options open.
Although this article might scare you off from investing into blockchain, the market is still in its infancy stage and there are many improvements to be made. The purpose of this article is to inform and warn people of the dangers that come with investing in ICOs, as well as ICOs in general. Wherever you may choose to invest, whether it is blockchain or the New York Stock Exchange, there will always be dangers you must be aware of. Do not let this article discourage you from investing in whatever project you may believe in, however, remember to stay critical.