What is ICO?

What is ICO? Some call it Idiot Coin Ownership plan but it is a popular acronym for Initial Coin Offering. It is actually an unregulated form of Initial Public Offering.

ICO Boom! I have been bombarded by ICO Alerts almost daily and it seems like it is picking up pace and not slowing down. In general, an ICO or Initial Coin Offering is generally a high risk investment not for the faint hearted. Just like a crowd-sale, you do not receive the goods until after you have paid for it, and in some cases, you will never receive what you pay for! An ICO is based on a promise to carry out projects which may or may not be realised. Although, with a strong project team with the expertise and know-how, you can potentially own a coin with 100x appreciation! Yes, welcome to the crazy world of Crypto-currency and ICOs.

There are several categories, but for simplicity sake, I have narrowed it down to 3 types of crypto-currency.
Technology based ICOs – Initial Coin Offering is conducted to raise funds for a coin project. The coins normally have a utility, i.e. Bitcoins (it was an innovation at that time), which allows for a decentralised crypto-currency which can be transferred with low fees and highly divisible amounts. Since then, there are other coins with improved features, such a platform coins such as Ethereum or privacy coins such as Dash, Monero, ZCash and ZCoin. Ethereum ICO sold ETH at USD0.40 and have reached USD100 recently – this is a return of 250x! These are the few unicorns of the Crypto-world. Outside of the well-known coin projects, there are also many technology coins which has gone the way of the dinosaurs.

Social Initiative based ICOs – Initial Coin Offering can also be used for social projects such as Stellar which seeks to solve the problem of the unbanked by distributing Lumens. They are giving out Lumens according to the BTC ownership and also distributing Lumens to the unbanked through collaboration with NGOs (Non-Government Organisations) or Non-profits to distribute the crypto-currency through the world. Or Steemit, which is the blockchain platform for blogs.

Investment based ICOs – Investment based ICOs is basically the tokenisation of a real world asset. Investment Based Coins (IBC), the popular investment model is based on Gold, Land, a Business, (insert any item the public thinks will give them a return), etc. There is a major debate on the legality of such schemes as some of the projects do not have a legal entity and those with legal entities do not have the authority by the Registrar of Companies to conduct such a business. On a base level, raising money from the public normally requires a license from the government and the debt raised needs to be acknowledged and reflected in the registered company’s account. There are some jurisdictions which are stricter on this but at the moment most governments (with the exception of the USA) do not understand it enough. And since the assets are often in the real world and the value reflected in US Dollar or other fiat currencies, there is a huge ‘currency fluctuation’ risk when you invest with Bitcoins or other crypto currencies. Some of them are outright Ponzis, MLM and HYIP promising fantastic and unreal returns. In general, they are all risky as investors will be exposed to business risk and they will also be the last in line should the company fall into receivership. THIS IS THE HIGHEST RISK CATEGORY AND I WOULD HIGHLY ADVISE ALL INVESTORS TO AVOID THIS CATEGORY OF ICOs.

Always remember, you are spending Bitcoins (which is worth money) into other digital tokens which may end up being worth nothing. But at the same time, you can make a fortune of 3x to 10x. If you are unsure, the best option is just to sit on your bitcoins for a few years. It is the default currency of the crypto world and that is not likely to change anytime soon.