By: Sameer Zubairi | 3 min read | 28/01/2019

ICO’s (Initial Coin Offerings)

ICO’s EXPLAINED

Initial Coin Offerings are a great way for an emerging blockchain project that has gained some steam to generate investment capital for their venture. The blockchain is a revolutionary database structuring system which can be applied to almost any industry.

There are many emerging projects that are taking this transformational tech and implementing it across numerous sectors. When such companies start gaining hype and generate interest from investors, they draft what is known as a ‘White Paper’.

A White Paper summarizes the technical details and basic intentions driving the project, serving the purpose of informing potential investors. Next, marketing campaigns are used to generate buzz around an initial coin offering where interested parties can get more financially involved with the project.

An initial coin offering is also known as a crowdsale, token sale or a token offering. It’s a virtual sale where investors can purchase a company’s tokens with crypto or fiat currency. A token is a special type of cryptocurrency tied to the company’s blockchain initiative and often rewards its holder with special access to future services or an equity stake in the company. A crowdsale occurs over a predetermined amount of time where tokens are randomly distributed amongst a pool of investors willing to pay for them

PROCEED WITH CAUTION!

Despite most ICO’s promising to take their distributed tokens live on exchanges in the future, for a large majority of ICO tokens, this just isn’t going to happen. Most blockchain projects are not going to yield major rewards for investors, it’s important to realize this before delving deeper into the ICO space.

Statistically, ICO’s are set up for failure, but this isn’t even just due to bad project ideas. There are many fraudulent ICO’s around making it a lot riskier. Regardless, ICO’s like Ethereum have yielded some serious returns for investors in the past.

The SEC has also warned investors of the potential risks of ICO’s as there are no laws and regulations in place dictating their activity. The SEC is the reigning authority when it comes to ICO’s since these are considered security offerings and fall under the federal securities laws.

Until regulatory oversight kicks in, ICO’s will continue to behave like the Wild Wild West, where fraudulent promises of guaranteed returns prevail. It is also important to consider that smaller blockchain endeavors can be highly susceptible to hacking attempts. However, by fulfilling the promise of quickly generating investment capital for many firms, ICO’s are being taken more seriously in the investment world.

ASSESSING ICO’s

Your interest in an ICO should be strictly tied to the blockchain project backing it up. Market analyses of ICOs are still premature and unreliable, which is why the potential for a company to gain traction with users is a better investment indicator. Ultimately, you should learn as much as possible about emerging blockchain projects, so use these following tools to pick out the rubies in the rubbish:

Always start with the White Paper. This is a rule of thumb when delving into a new blockchain project since the White Paper is a document that contains all major details released from the creators. This is a good way to learn more about the technical capabilities of the venture and its planned growth.

The second most important step is to learn more about the company’s partnerships and any news highlighting its performance. This will usually reveal whether a project is to be taken seriously or not. For example, if it is public knowledge that several major banks have pooled a lot of resources to fund a blockchain endeavor, then that project is likely not a fraudulent attempt to coax investors into buying fruitless assets.

More importantly, by keeping up with projects over popular cryptocurrency channels on platforms like Twitter or Telegram, investors can stay updated on public expectations. This is also a great way to filter out the noise.

CONCLUSION 

In all honesty, ICO’s are at a very premature stage, but in this rapidly evolving field, they are being used as a powerful tool for companies to quickly generate investment capital to fund their projects. There is no doubt that the SEC must pass regulations on these securities, but the impact of these regulations on the pace of future ICO’s is still speculation. Highly regulated environments can turn off certain stakeholders, which might eliminate this market entirely. For the time being, it is important to stay vigilant and knowledgeable.  

Make your first digital currency purchase today