If you are reading these few lines, it probably means you don’t know what an Initial Coin Offering is, and you’ve probably never participated in a cryptocurrency fundraiser.
So, what is an ICO?
An ICO or Initial Coin Offering represents the equivalent of an IPO (Initial Public Offering) in the world of cryptocurrencies. More generally and without comparison with the stock market, an ICO is a fundraiser in cryptocurrency (possibly in fiat currency) whose counterpart corresponds to tokens or cryptos specific to the funded project. This financing system radically changes the way of raising funds.
The number of these fundraisers literally exploded in 2017. Indeed, more than 3.5 billion dollars were raised in 2017 through this means! (source: CoinDesk)
These fundraisers can be extremely profitable but can also be completely “bogus.” Indeed, taking the example of IOTA, if you had participated in the ICO (end of 2015) and kept your tokens until the end of 2017, you would have multiplied your initial investment by more than 500.
Conversely, if you had participated in the Confido ICO, you would have lost all or almost all of your initial investment.
A bit of history
One of the first ICOs (in terms of amounts collected) to have emerged was Ethereum which dates from 2014. The founders of this crypto-currency offered to exchange bitcoins for Ether for the purpose of financing their development. The number of bitcoins collected exceeds 25,000, propelling Ethereum to 8th place in terms of capitalization, from its launch, with a valuation of more than 17 million dollars.
Why invest in an ICO?
Suppose you are a (potential) future use of the product that the company wishes to design. In that case, the redistributed tokens (in principle) give access to the product or advantages in its use.
Of the speculative nature, the sale of the ICO reaches a smaller number of investors and runs at a fixed price. It can be assumed that these investors will offer (sell) the token at a higher price than they touched it.
A significant capital gain can be expected if there is a strong demand. In addition, the majority of ICOs offer discounts for token buyers, with promotions ranging from 5 to 25% and generally decreasing over time.
If your aim is to invest in an ICO project, make sure to check out the ICO calendar and learn as much as possible about the project and the team (by reading the white paper, doing research on the Internet, scrutinizing social networks, etc.)
What are the risks associated with ICOs?
The main risk of an ICO is that it is a scam. The organizers of the ICO, if they are not in good faith, can at any time leave with the amount raised.
For instance, in November 2017, the founders of Confido, a cryptocurrency payment application, disappeared with more than $375,000. The website and their social media accounts have been taken down. While the token traded at $1.2 on November 14, 2017, it was only worth $0.01 on November 22.
