Initial Coin Offering Investments: What are the Biggest Risks and Prospects of ICO?
ICO AS A NEW FORM OF INVESTMENT
ICO (initial coin offering) can be seen as a new form of crowdfunding, which originated outside the traditional financial system. Also, instead of ICO, the term crowdsale is often used. This model has helped many projects and companies to get the funding they need to start their business. It is used primarily by high-tech startups to bypass the strict and regulated process of raising capital through IPO. In fact, this is the form of cryptocurrency crowdfunding. Investors buy coins, which are used only within the project, for a certain price.
Unlike shares in IPO’s, these tokens are tied to a particular project and are subsequently treated in the same way as cryptocurrencies. Over some time, the investor can earn on their growth in price as the value of the token directly depends on the number of future users and their activity.
However, the ICO investments have a number of common features with the traditional IPO: both these options are selling a part of the business to investors who are willing to risk their money when seeing the prospect in the business. At the same time, the main difference is the nature of investors: in ICO, it is exclusively non-professional players and private traders. It is also worth noting that the ICO procedure, like the entire circulation of cryptocurrency, is absolutely not regulated by the governments at the moment.
Blockchain ICO can grow exponentially due to limited emissions and growing demand. The more coins will be bought during the ICO, the higher will be the price at the start of trading with these tokens on the stock exchange and, very likely, investors will have the opportunity to sell them with significant profits right after the ICO. Usually, ICOs are applied before the project infrastructure is completed, while the money is used to finance the final stage of development.
Why did ICO projects suddenly become so popular? ICO seems to be a simple way to raise money without engaging in lengthy negotiations with investors. In addition, in case of failure, the legal consequences for the startup are absent.
The main risk is the loss of funds if the startup closes. Unfortunately, the majority of startups do close before they have gained a fat sum of money. The second important risk is the loss of crypto keys. For example, if you kept a token on the exchange that was hacked, you will not be able to get the funds back. And, the last one is that there is no way to guarantee a fair distribution of profit between the tokens owners. This problem concerns basically the businesses that are not completely virtual.
Despite all the risks, ICO remains the most simple way to collect funds for a startup that drags the attention of millions of funders across the world. Isn’t it the reason to give it a try? Read the next section to learn how to start your business with ICO today!
SO, HOW CAN I APPLY ICO TO MY STARTUP?
When you enter this market, it is important to take into account the peculiarities of your startup, choose the blockchain platform and other software. This decision will determine whether your startup will fall into the number of those who managed to successfully collect the necessary funds and succeed or not.
In particular, the mechanism for pre-selling tokens directly depends on their types: appcoins and shares. They differ primarily in the presence or absence of the source code. Regardless of the ICO software type, teams need to start with the White paper publication (the key technical information about the project such as goals, timeframe, team, project features and so on) in the cryptocurrency investors communities.
Appcoins are a form of currency that users need to obtain services provided by a decentralized network. In other words, they give no rights for the investor but the ability to use the application. If the source code is already available, the team should announce the ICO starts soon and publish the source code before the generation of the first token.
Then, the network is deployed and appcoins mining starts. After that, the ICO launch is advertised and the sale of tokens begins. The company can decide what currencies they would like to accept: dollar, euro etc, or only cryptocurrencies, or both of them simultaneously). Next, the team is working on the project development in that way: creating a network effect, creating applications and supporting the network.
Share tokens are used to finance the development and build a network. They do not need access to the company’s services and can be considered as crypto-shares of the company. In exchange for investments, the holders of stock tokens receive dividends in the form of interest on income or part of commissions for transactions within the network.
In share-based ICO projects you should create a smart contract with a number of share tokens reserved for the founders of the network; then, create a provider company that will develop the network for a fee. After the tokens are sold and money received, the payment to the provider company is made. The development team expands the networks, collects and distributes rewards for using the network.
Whatever your startup is, the ICO development will allow you to collect funds for its implementation in the shortest possible terms. You will also get rid of the need to go through bureaucratic procedures and quickly enter the market. So, let the new crypto technology change your life and the lives of your future users around the world!