What Is An ICO And Why Should You Care?

What Is An ICO And Why Should You Care?

The ICO stands for Initial Coin Offering and is basically a specific fundraising mechanism through which projects sell crypto tokens, usually in exchange for Ether and Bitcoin. We can see it as being similar to IPO (Initial Public Offering), where investors buy company shares.

While the ICO is quite new, it is nowadays incredibly popular in the blockchain community. The debate at the moment is whether the ICO is:

  • Unregulated and allows the founder to gain too much capital.
  • An innovation in venture funding.

Controversies do exist but what you should be aware of is the fact that not all the ICOs are profitable, although you will never see one that does not promise huge potential benefits. That is mainly because of the really high success that some ICOs had in the past. The best examples include:

  • Ethereum – Most people do not know this but Etherium was launched as an ICO, now being the second cryptocurrency in the world in terms of value. The initial tokens were sold for $0.31. Now the value of that token is $334,25. You can do the math.
  • NEO (Antshares) – NEO has been dubbed as being China’s Ethereum. The ICO was mainly successful because of big name backers, including the Chinese Government, Microsoft and Alibaba.
  • Stratis – This UK startup created a really interesting platform that allows the business to test, create and deploy a custom application without having to own an infrastructure to do so. Stratis raised 915 BTC in just 5 weeks. The token was 1 cent and the ROI was over 44,000%.

Is The ICO Legal?

Whenever talking about cryptocurrencies, we need to think about this. You will rarely see restrictions for people to participate in the ICO. The investors pool is global and money raised can be huge. The big problem is that money is usually obtained before the product is developed. We are thus faced with a really risky and speculative investment.

ICOs are sometimes legal but oftentimes fall in a gray area as the financial assets you receive are largely unregulated. If you want increased security for your investment, you want to be sure that the considered ICO for your investment is approved by SEC.

Should You Invest In ICOs?

Because of the high risk associated with an ICO, the general rule of thumb is to always invest only what you can afford to lose. Make sure you know as much as possible about ICO backers as this is going to be a clear sign of potential. Also, there is nothing you lose when you do not have to put money into an ICO. A recent one for REDV, for instance, rewards you for some social actions like sharing or joining a Telegram group.

As always with crypto, be careful with your investments. I recommend that you NEVER put more than 10% of your available investment budget in any ICO.

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