Just a year back, initial coin offerings were in their nascent state with not many people wise to the potential they had. While still many are at sea when it comes to deciphering the true value of the initial coin offerings (ICOs), more and more investors are waking up to the promise these tokens offer. To those who are new to the ICOs, here are some basics that will help understand the risks, profits and choosing the right ICOs for investing.
What is an ICO?
ICO is a system where individual investors invest capital or aggregate capital in a company as part of a common funding initiative.
In many ways, ICO is like the initial public offering (IPO) made by a company.The difference lies in the fact that with an IPO the company sells its stock shares indicating ownership, while in case of ICO it is sale of the tokens.
Tokens are contracts based on blockchain technology. These digital assets have a specific monetary value that is expected to increase in value just as bitcoin. The tokens are generally funded with Ethereum or bitcoin.
ICO, being relatively new, is not fully regulated by SEC like the IPOs. When completely regulated, the ICOs will adhere to the rules related to Anti money laundering, Investor protection and KYC (Know Your Customer) features. But as of now, the ICOs are just utilities that are more speculative than a structured framework. They do not have any economic connection or unity between issuer of the token and the holder of the token. This is the reason that ICOs have the risk of attracting potential scams. But while you need to exercise caution in buying the ICOs, when chosen carefully, the ICOs provide immense value if you are looking to add on alternative assets.
Choosing the right ICO
Here are few pointers on how to choose the proper ICOs and the ways to avoid the risker offerings:
- Check the company releasing the ICO. Know about the product development potential and the plans the company has on utilizing the funds received via the ICO. Since some companies lack a stable or standard plan and are just raising as much capital as they can, it may land you in trouble if you are not careful.
- Review the people and partners of the company who are behind the ICO. Knowing about the people involved will help in protecting your investment.
- It is best to look for offerings that have a regulatory structure
- Tokens supported by securities rather than utility functions will have minimal risk
- ICOs by broker dealers are also a good option to consider
To gain the best benefit from ICOs, you should look at the impact they can have on the environment and society as a whole. By investing in the ICOs, you can help bring in democratization of the capital funding process. This will bring in a positive change in the business environment allowing companies to innovate, create more jobs and prosper. This can have a lasting and positive impact on the economy when used in the right way.