nitial Coin offering (ICO) stands for the initial price presented of a new cryptocurrency, it is considered a fundraiser that startup companies use to attract investors to their new promising crypto idea (a blockchain product: tokens). It’s a source of capital for startups that deals directly with the public which is the blockchain proposal. Regulations for ICOs are a work in progress, something to be on the lookout for with every project.
ICOs are said to have been born from the IPO (Initial Public Offering) crowdsourcing idea. IPO is directed towards securities like stocks, bonds, warrants and capital notes to raise funds with several requirements and the need for a “third man” like a stockbroker. They are done by big companies who are already doing well, only presenting a first part of a new share of stocks. For IPOs investors must be accredited, as opposed to ICOs which they usually do not.
HOW DO THEY WORK?
ICOs always start as an idea that is offered to the community and according to the hype it takes a more official approach.
Here is the process of an ICO in simple terms: project owners list their ideas, see the public’s response as they issue a white paper that includes all details, from technical team, future plans, number of tokens, prices and a description of how they will used. After this they unveil the scheduled date for the fundraising to begin. There is usually a defined time to which the fundraising closes. Once that is over, the investors start to receive their tokens.
This pre-sale that seems to have no clear regulations is one of the reasons many people are skeptical about ICOs.
I’d say pre-sales are an intelligent move assuming it’s coming from a serious seller, because you get to present and see firsthand the market’s reaction before providing accordingly. As we go along I will provide some tips to help you protect yourself from fraud, bad sellers and their ICOs.
Some people may choose to keep their tokens and some may choose to exchange. If they choose to exchange it is usually in bitcoin or ether. One example of a safe exchange would be SouthXchange, do your homework and check them out.
I’m not selling them, I just happen to have done my homework and they are a safe and secure way to exchange. As secure companies like WINCO work with. You can actually pick whatever company fits your best interest as long as the token you’re trying to exchange (for bitcoins or ether) happens to be listed in the exchange service of your choice.
ICOs give many the chance to speculate this new world. You have to remain lucid as you get to explore this new idea, only invest what you can afford to lose. As of right now, in my opinion, this should not even be seen or called an investment (even though it is, lol confusing I know), instead it should probably be called SUPPORT or SPONSORSHIP, because that is what it is mostly as of this moment.
This is about people believing in this relatively new and revolutionary ecosystem, that inevitably will take over the world. So, whether you take a part in it now or later it’s just a matter of time, which makes it reasonable and smart to start right away and what a better way than the ICOs?
Disclaimer: I AM NOT TRYING TO DISCOURAGE YOU, I AM A FIRM BELIEVER IN THIS BLOCKCHAIN CRYPTOCURRNECY PROJECT, I JUST SINCERELY WOULD LIKE TO HELP YOU SEE ALL THE STEPS CLEARLY, AS YOU SPONSOR AND EMBRACE THE FUTURE.
Now, why I am saying this? Because one thing I have noticed is that many newbies might join this cryptocurrency world without much knowledge of the pros and cons, stepping in the dark with the “investment-mind-set” which tells me I need to see returns and it just might get one frustrated. In this case, it’s no different, you should expect returns but in the long term. This is all about becoming a part of this ecosystem, thinking in the future. Planning, preparing, and again becoming a contributor.
ARE ICOs LEGAL?
In some countries like Mexico ICOs are considered illegal. In China and South Korea, it has been banned. Most are still studying a way to secure it but most likely eventually they will take the “SEC path” like in the US.I mention SECbecause it is important for you to study about them since most cryptos are first bought USD.
SEC (Securities and Exchange Commission) is an independent federal government agency responsible for protecting investors maintaining fair and orderly functioning of securities markets and facilitating capital formation. SEC is a heavy security and has already pronounced themselves on clearing the gray areas of this crowdfunding in the US.
I’ll list some of the countries where ICOs are allowed at the moment, and are subject to regulations by their security divisions: European Union, United Kingdom, Canada, Estonia, Germany, Israel, Singapore… In the US where they are heavily regulated.
HOW WOULD YOU PROTECT YOURSELF FROM FRAUD?
After reading Ouriel’s opinion I must confess I couldn’t put it any better. Disclaimer: He is a newbie who has managed to put together some info in plain English. He has learned how to protect himself and is now sharing his tips which can protect us from future headaches.
His answer to our question is…
There is NO clear recipe.
Read their white paper. It should resonate with you. It should be well articulated and their plan should make sense. Don’t participate in an ICO because you think it’s cool. Understand where you put your feet.
- Best ICOS are well marketed. Sometimes too well. Go to Reddit and Github and find if the communities are excited. See if the founders are active on social media.
- Try to find peers that are also excited by the ICO you’re looking at. Don’t invest alone thinking you’re a genius. You’re not.
- If they have a product find a demo or try it
- Learn: Try to find podcasts about the team to get excited about their project. Learn about the team. You need to be convinced they are good for the idea they are defending.(VIA HACKERNOON BY Oureal Ohayon)
THANKS O! Very helpful tips!
Just to compliment his thoughts, you should connect yourself with other cats in this game by going to workshops, get together with people who happen to be more experienced than you. Get involved!
Now to finalize this article, even though all of these tips are valid, there is no guarantees. ICOs are a big thing that do not seem to be slowing down, actually taking advantage a momentum. So just do your best to inform yourself and stay tuned!
WHERE TO FIND ICOs?
Here are some websites you will find several ICOs listed:
Here is an example of an ICO workshop
also search for ICO MEETUPS.
KEYWORDS to research: crowdfunding, IPO, blockchain startups, cryptocoin exchange, wallets, Harvey test, SEC, tokens versus coins, ICO regulations by countries, white paper.