Whether you’ve recently taken interest in Bitcoin or Alt coins and Cryptocurrency, or you’re a legacy supporter of the Blockchain and Crypto, by now I’m sure you’ve heard the term ‘ICO’, or ‘crowd sale’ being thrown about in recent times. No?!
Well firstly, as a disclaimer, I don’t claim to be an expert on ICO’s. This is just what I have learnt about in my research and findings. Although I decline to name them, I have taken part in and actively contribute to a quite a few ICO’s at present.
So, what is an ICO?
ICO’s, are otherwise known as Initial Coin Offering(s), or sometimes referred to as ‘crowd sales’. The intention is that investments into a company, currency or particular concept is attracted by offering digital ‘shares’ in one of the above, at a pre-release/development/build discount, for the purpose of either starting, developing or sustaining any of the aforementioned.
In simple terms:- Investment, or contribution into a company or idea.
How does it work?
ICO’s are normally launched with a countdown timer indicating when the next stage, or end of an ICO/crowd sale will be. This is normally found on the companies website and advertised in Cryptocurrency communities and on Crypto based sites/platforms.
ICO’s normally accept investments or contributions using existing Cryptocurrencies and sometimes FIAT currencies. The most widely accepted Cryptocurrencies used for payment are normally Bitcoin (BTC), Ethereum (ETH), Litecoin (LTC), Dash (DASH) and many others, with the first two being the probable leaders in this.
Funds are normally sent to an online wallet, which exchanges at a rate set either before investment, or following the closing of the crowd sale, into the currency, or token that the company is introducing into circulation, or in some cases already have in use.
An example:- Company A is starting a crowd sale to get their coin, or project/product to development. They can issue of XXXX amount of ‘A coins’ into the public domain which would act as digital shares in that company or concept. Depending on how much they need to raise to complete, or start production, or development, the coins would be priced accordingly. So, if we say 1 ‘A Coin’ is worth £1, then a £1000 investment/contribution would get you 1000 ‘A Coins’ and the company would gain £1000 in capital.
Once the crowd sale has ended and work begins, these digital assets would be priced and listed onto the Crypto exchange market, just as shares in a share based FIAT operated business would in the share/commodity market (FOREX etc…). The expectancy is that the shares go up in value, due to the investment and interest generated, to secure a return for contributors and investors. The assets can then be sold at profit. Due to how Cryptocurrency works the business can still continue to operate as they will draw revenue from whatever activities, or business model their business proposed to undertake from the start. So if 1 ‘A coin’ is worth £10 on the open market, following this then your investment would now be worth £10,000.
Alternatively, you always have the option to hold on to these assets for a s long as you wish, or even to make further acquisition of assets through a Crypto-Exchange, or Private transaction. Most of the time these can be sold on, exchanged or transferred whenever you wish.
It is important to note that the value of your investment can either increase or decrease in value due to a number of factors and any type of investment, FIAT, or Crypto will always carry a proportion risk. It is your sole responsibility to take this into account if making an investment of any kind.
So why an ICO, why not Kick Starter, a Bank loan, Government Funding or Private investor?
An ICO allows many private investors, or contributors to make investments/contributions into an idea or company, all at the same rate, all at the same time (over a specified period), in real time, without the need for meetings, conferences, or endless video and voice calls. This obviously saves significant time and cost in relation to actually making the investment happen.
To add to this, there are various models of ICO and probably the most popular of these allow the creators, or founders to keep hold of their rights and share proportion of these companies, even though the majority share has been sold to private investors. Due to the way how Blockchain and Cryptocurrencies work there are often limited or no controlling shares in companies that are funded/operated by these means.
Just as with any investment there are possible downsides, such as the fluctuating price of accepted cryptocurrencies, the possibility that the company/idea fails to take off or work for whatever reason, scammers, server hacking, DDoS attacks and trolling. The latter three, however, you could get for the wrong post on Facebook nowadays though and as for scammers, well they’re everywhere anyway. The first two always seem to be the biggest of risk here, but as I often ask my self, how is it useful? What is it for? Also many times? Who are the guys backing it? If I cant answer these four questions with some secure certainty, I tend to stay clear, but that’s just my opinion.
The future of investment?
Many have tipped ICO’s as the future of start up investment with many companies raising phenomenal value in their companies within days, hours, or sometimes even minutes of them opening. Many crowd sales often reach and exceed their funding target within the allotted time frame for the sale.
This can also sometimes lead to the value of the companies coin, token or shares rising to up to XXXX% of its initial crowd sale pricing, leaving founders, employees, investors, supporters and contributors in a very good position indeed!
I think that this will be the new way forward, however adoption of the Blockchain and Crypto is essential in making this the complete way forward, but for now it is currently, probably the most efficient way to fund an emerging idea, or business.
Things to look out for before investing:-
Do they have a White paper?
A White paper serves as a technical explanation, or as a business/concept summary, or Business Plan, outlining the objectives, targets and integral details of the business/proposal/idea.
Is the idea original?
If 100 other companies have the same idea, what makes this one different?!
Does the White paper make sense?
Not just financially, but does the idea sound realistic, does it sound like something that will work? How interesting is the product/project to you and do you believe in it?! Do some research.
Have you seen the guys who are backing it?
It’s always good to do some research on the team behind the idea, is it a separate company? What do the team do and do they have any experience? I think the keyword here is reputation!
What type of investment is it?
Are you investing in a project, company, or product? Are they App Tokens, DAO/Share Tokens, a currency, or asset backed? How do you get a return?
What are others saying about it?
What is their following/community like? Do they have good support? Are people saying good things? What is their social media like? Is the company informative, responsive and up to date?
So, that wraps up my brief talk on ICO’s. Hopefully, I have helped to explain what an ICO is and shed some light on the subject for beginners. So, what is left to do?…YOUR RESEARCH!!
Guest blog written by: BTC Bros