The Initial Coin Offering is the main system used by cryptocurrencies and his owner for fundraising huge amount of money and can be considered the main event that launches a new project online with a lot of stakeholders involved.
Supporters and fans of the invest their money by receiving the tokens of the new cryptocurrency in exchange. The money raised through the ICO can be used to cover the initial costs of the project, including: product development, marketing, the legal sector, etc. ICOs represent a strong attraction for investors, they can potentially multiply the investment in the short term. On the other hand, they can prove dangerous, and a profit obtained quickly can turn into a significant loss, there is no guarantee of success. The best advice for the investor is: never invest an amount of money that you cannot afford to lose.
ICO versus IPO
The ICO can be compared to a less rigid form of an initial public offering (IPO). ICOs allow large and small investors to expose themselves for any desired amount, while IPOs are more geared towards institutional investors with a larger budget. Another feature of IPOs is the amount of legal documents to be produced, conversely we can consider ICOs a bit like the wild west of fundraisers, and it can be very complicated to understand what laws are applicable to them. However, a change is underway in the direction of regulating ICOs, which however remain bound to respect the legal terms of each country in which it wishes to distribute its tokens.
ICO - Pros and Cons
ICOs are developing great interest within the cryptocurrency community. Recently, Tezos raised a record $ 232 million in just over three weeks! But not all of the stories are happy until then, the CoinDash ICO website has been hacked causing $ 7 million in losses. Hackers changed the address of the deposit so that investors sent their coins to a different address than the canonical one.
Another un encouraging example was what happened to KICKICO, the attackers were able to activate a function in the smart contract * responsible for completing the fundraiser so that it would send $ 600 million tokens to an address. unknown wallet. In this case there was no loss of money, but KICKICO had to create new tokens and reassign them to all the shareholders who had them; however, it left investors with doubts regarding the reliability of the project.
* Definition of a smart contract: smart contracts are fragments of self-executed code, where the terms of the agreement are written directly in the lines of the code. They can be direct agreements between buyers and sellers, none of which must necessarily be human.
Guidelines for Investing in ICOs
So how do you choose your ICO investments? One of the most important aspects of an ICO is the composition of the team, it examines the entire team very carefully, in particular the development team, because it is the main responsible for the success of the final product. Search Google for each member and visit profile pages on LinkedIn. The goal in analyzing each member is to find out if they have relevant experience for the realization of the project. Another aspect to consider when looking for a successful ICO is the involvement of the community, which can be implemented through clear information and transparent management. Weekly or monthly updates could be a good start, investors want to be personally involved in the project to which they entrust their money. In addition, it is possible to provide clear information through a white paper, this must be well written and cover all aspects of the ICO. Being a major showcase of the project, a white paper should include: technical details, the detailed breakdown of the distribution of the tokens, the purpose and use of the tokens and the timings planned for each step. Next, evaluate the project phase and whether there are venture capital investments.
Since trust is a crucial node, a project that has released a functioning beta version will receive more attention and allow investors to take a look at the final product. VCs tend to invest and support projects from the early stages of development, you can find this information on the official web pages and pay attention if there were the participation of famous VCs such as Blockchain Capital or Fenbushi (owned by the founder of Ethereum, Vitalik Buterin).
As for the code, some useful information can be obtained from the project's Github page. Github collects statistics on each project and through the "Insights" tab provides you with a graph of the activity, this is based on the addition of the code (~ commit) and shows all those who contributed and the importance of their contributions. Developers can assign stars to projects they particularly admire, the higher the number of stars assigned to a project, the more likely it is to be appreciated by the community.
Another important aspect of an ICO is the use of a limited cap, called a hard cap, this indicates a maximum ceiling for fundraising. An unlimited cap has no restrictions, as in the case of the Tezos ICO where the astonishing $ 232 million was raised. A hard cap is an attraction for the secondary market and usually also attracts investors. Always keep in mind that a project must increase the amount of funds to increase its development, bear the costs of marketing and other expenses.
ICOs are a fundamental component of the world of cryptocurrencies and have become commonplace for fundraisers. It is essential to inquire and read all the information of an ICO before investing and for us the crucial element is a transparent environment in which you can put your trust.