For high-tech, capital-intensive startups, financing is vital to competing and surviving in the marketplace. One of the fundamental steps and, in turn, the most difficult for entrepreneurs, is to find and choose between different sources of capital to finance their startup. Currently and taking advantage of blockchain technology, startups recently began to finance their operations with initial coin offerings(ICO). This is also often known as a token sale.
In ICOs, entrepreneurs distribute digital assets, such as coins and tokens, to investors in exchange for capital. These tokens take on different functions and utilities within the issuer’s network as soon as the project is launched. ICO initial coin offerings are a novel form of funding that has generated billions of dollars in the blockchain ecosystem. Potentially challenging traditional funding vehicles, such as venture capital or business angel investments.
What is ICO?
Initial coin offerings ICO or Token Sales are a form of financing in which companies, mainly startups, collect funds through tokens or cryptocurrencies that they have created themselves. It works similar to a traditional initial public offering. In the case of ICOs, units (tokens) of a virtual currency are sold that are still in a very early stage of development or even in the state of a theoretical white paper.
This sale, to raise funds, is usually against Bitcoin(BTC) or Ethereum(ETH) and not in traditional currencies such as euros or dollars. The proceeds benefit the developers of the project. In addition, it is intended to ensure sustainable financial viability for the continued development of the virtual currency on offer. ICO are different from traditional crowdfunding to the extent that blockchain technology transfers some of its implications and characteristics. For example: transparency, immutability, decentralization and openness, to the properties of the ICO.
An initial coin offering is typically announced with the disclosure of a whitepaper describing the token sale, the underlying IT protocol and blockchain, as well as the project and business model. It also describes the distribution and function of the token, the rights of its holder and its value. The number of tokens is usually limited, with a set funding limit. The most common way to offer tokens is through an auction, with the proceeds going to fund the startup or project.
What Functionality Do they Have?
An ICO token is a cryptocurrency issued specifically for a project in question. This has among its functionalities to digitally represent a right or a set of rights. The simplest form of representation is that of the token. This simple token, called a utility, does not convey any right over the company, the project or the product. Its investment incentive is due to the real prospect of an increase in value in case the associated project succeeds and the demand for the tokens increases.
There are also usage tokens, which, similar to a voucher or a license, transmit access or the rights to use a product or service. An example of this is the American startup Protocol Lab: its Filecoin aims to become the currency of a decentralized computer network in which users can rent unused storage space from each other. Your tokens represent the rights to use the buffered storage space on your website.
ICO also function as assets or products. Among other things, these tokens can embody ownership of something. One such example is the Chinese company Tether, whose USDT token represents a right to one of the US dollars held by the company in each case. They can also function as work tokens, where providers do not issue tokens for payment, but rather in exchange for work. So-called “advisory agreements” are those in which consultants are hired whose services are rewarded as part of the token sale.
How Can You Make Money By Being Up To Date With ICO?
Before investing in any ICO, you should do extensive research on them. Since there is currently a large list of ICOs, which due to their projected figures attract a large number of investors. Many of these will yield some very attractive numbers, numbers that are sure to catch the eye of any investor. Names like IOTA, Stratis and NEO, which have risen through the ranks with gains in excess of 100,000%, can look very attractive to the investor.
However, looking back, there is a bigger reason why these companies have found success. It is about the vision of the company and the results it offers to the community. There is no formula that you can follow to know if an ICO will be profitable or not. But learning as much as you can about the product, the team, and the vision of the company can help you have peace of mind with your investment.
To make money with ICOs, you must be up to date with the information about them and take these aspects into account to consider the profitability they can provide:
- Know and follow up on the developer team, the best ICOs have a great team of developers behind them.
- Review the technical document and defined roadmap, this is important because it can be an easy way to determine if a company is legitimate or not.
- Follow up on social networks, reviewing the reviews of the company that interests you.
Is it Safe to Participate in Them?
Since investors who get involved in an ICO do so at a very early stage in the development of the project, it is an extremely speculative risky business. This type of business is associated with huge profit opportunities, but also with the risk of total loss. If you invest in an ICO, you can earn a lot of money, examples like NEO, Ethereum or Spectrecoin are proof of this. But by no means is every initial coin offering going to later become a valuable coin.
Therefore, choose your investment vehicle carefully and invest only money that you can recover when in doubt. This high risk, on the one hand, is due to the fact that many inexperienced investors are attracted by easy access via the Internet and the promise of quick money. Most projects consist of complex technical topics, the evaluation of which requires deep technical understanding and extensive research.
On the other hand, the technical simplification of the ICO process itself increasingly attracts unprofessional providers. Due to the early financial input into the project, it is difficult to predict whether it will ever be completed and launched, develop favorably, or fail later. Also, due to their internationality, ICOs carry the risk of more difficult legal enforcement, as different legal systems and instances often clash with each other.