Initial coin offer is a fundraising process that entrepreneurs/companies sell their crypto tokens to raise funds for the project. The investors, who have interest in the project, can buy the cryptocurrency issued by the companies.
We should say that some ICOs, initial coin offer, may have good returns although there can be fraud, failed or poorly-performed ICOs.
How ICO works?
If a cryptocurrency entrepreneur would like to raise money via ICO, developers create a document called ‘white paper’. Normally, a legit whitepaper includes follows:
- Explanation of the project clearly,
- How much money does the project need,
- How many cryptocurrencies the founders will have,
- What type of money is needed,
- Lastly, how long the ICO campaign will be.
If investors are willing to buy the project, they buy the project’s tokens after reading white papers . This process is also similar to Initial Public Offering (IPO) that a company sells its shares to investors. If required money is not collected, the money may be paid back as the ICOs, initial coin offering, is failed.
Advantages of ICOs
- Early contributors will have more liquidity and rapid capital growth,
- The investment is not affected by economic and political issues,
- Potential high returns (up to 10,000%) when the project becomes popular (Source: ICOstats.com),
- Getting extra services, ICO contributors can get gifts or bonuses as the project gets more and more attention and investors,
- Investing in the projects in more trustworthy countries easily and fast,
Disadvantages of ICOs
- Scam ICOs are always present, so you should be careful. (Some tips for scams: Fake profiles and team members, no communication with the founders, copy/paste (plagiarism) or poorly written Whitepaper, scam alerts on forums)
- The token may lose its value for a while depending on liquidity of the token after the ICO, so it is a risky investment model. We advise you to invest with an amount of money that you would not consider so much.
- The development team can be inexperienced and the project may not beat the competitors.
- Fluctuation of the value is possible at the early stage (pump and dump situation)
- Hackers may find a gap in the security system to theft the tokens, if possible.
If you would like to know more about ways to invest in cryptocurrency and earn passive income, click here to read more.
We explained ICOs briefly here. If you have any further questions, please feel free to ask.