💡 ICO: Is It Worth Investing? How to Understand When It’s Profitable 💰

Recently, the concepts of “cryptocurrency “, Bitcoin, ICO, tokens, etc. have become increasingly popular. And if most people are at least superficially familiar with cryptocurrency and Bitcoin, then ICO is a relatively new concept. Let's try to understand it.

What is ICO

First of all, ICO is a relatively new form of attracting funds to projects related to cryptocurrency. The abbreviation ICO (Initial Coin Offerings) literally means “initial issue of coins”. In this case, coins mean virtual currency, tokens, in fact – some “tokens” issued by companies. These “tokens”, tokens, are bought for cryptocurrency, and then rise in price if the project is successful.

Companies see ICO as a good way to quickly raise investment for their projects. The costs in this case are among the lowest.

Investors view ICOs as high-risk investments that can generate significant profits in a short period of time.

Conducting an ICO: How it Works

• At the first stage, a company (or even a group of people not united into a company) publishes a pre-announcement, posts a presentation of its project online, and “tests the waters.” This stage is designed to help understand how investors will react to the company’s idea, and to assess whether people will invest money.
• If the first stage is successful, the company goes further – publishes extended information about its project, provides White Paper, a roadmap, which includes a development plan, timeframes, a story about the team, etc. At the same time, the company issues tokens (in fact, coins of the new cryptocurrency, which can cost various real amounts). Tokens are offered for purchase to anyone interested, similar to shares.
• When a company posts information about a project, potential investors learn about it on specialized ICO platforms. People get acquainted with the information and consider the startup as a place for their investments.
• Investors who trust this company invest money, for this they purchase issued tokens for cryptocurrency. Most often, bitcoins (Bitcoin) or ether (Ethereum) are used for purchase. Sometimes tokens are also purchased directly for fiat (government) money.
• All collected cryptocurrency is sent to a special public address. The entire process of collecting money can take from several days to several months.
• When the ICO comes to an end, the tokens are traded on exchanges. At this stage, their price is formed, depending on supply and demand.
• Depending on the success of the idea, either the tokens grow or fall – accordingly, for investors this results in either profit or loss.

What is a White Paper and Roadmap

The concepts of “White Paper” and “roadmap” are among the most significant in the purchase of tokens. It is after reading these documents that investors often decide whether to invest their money or not.

White Paper is a document that describes the essence of the project in detail, it includes goals, a business plan, product specifics, detailed analyses and other related things. White Paper should describe the project very well and give a complete picture. This document should not contain unnecessary fluff, it is more like technical documentation. If it resembles an advertising brochure rather than documentation, you should be wary, they are probably trying to throw dust in your eyes.

A roadmap is a complete project implementation plan with all stages and deadlines. Sometimes dates are not specified specifically, only the sequence of actions is prescribed. It is very important to pay attention to the goals in the roadmap – they should be realistic and achievable, but at the same time ambitious.

ICO and IPO

The abbreviation IPO (Initial Public Offering) is well known to all stock investors and stands for “initial public offering of shares”. The concept of ICO may seem quite close to IPO, and for good reason, because the ICO principle was copied from this model. But there are a number of fundamental differences:

Price

For companies, going public on ICO is on average 10-20 times cheaper. If going public on IPO will cost an average of $200,000, going public on ICO will cost only $10-20,000.

Return on investment period

The return on investment period is much shorter. In the case of an IPO, investments will bear fruit over many years – on average, the period will be from 5 to 10 years. In an ICO, investments pay off faster, on average, up to 5 years.

Lack of control

When investing in the IPO system, shares are purchased, and shares are a share in the company and, therefore, the ability to manage – from minor voting to full management, if you have a controlling stake. Tokens in ICO (ICO tokens) do not provide such an opportunity, they can only be used in two ways – sold through the exchange or exchanged for services of the company from which they were purchased.

No dividends

Another advantage of shares is annual dividend payments. Tokens do not provide this opportunity.

Low entry threshold for investors

Almost everyone can afford to invest in an ICO – companies specifically set the price of one token very low, often below $1. Thanks to this, you can invest with literally a little spare money. The situation is different in an IPO – the minimum threshold is higher, often so much so that only large investors can afford to invest.

Simplicity

Going public for an IPO and investing money there are not easy tasks. At ICO, the same actions are simpler, you can invest in a project in just a few clicks.

Entering the market

The ability to enter the market at different stages of the project. At IPO, funds are raised after having already established themselves in the market and earned a good reputation. Of course, this would not have happened if the company had only a plan in hand. At ICO, a project can enter at any stage – from a plan to a finished product. This gives way to startups.

Fixed amount collection

Another important difference. At IPO, companies try to raise as much money as possible in a given time period. At ICO, they most often (but not always) raise a fixed amount, pre-determined for the project.

Benefits of ICO for Investors

What are the main reasons that motivate people to invest in ICO projects:

High profit potential. ICO projects can result in very impressive profits for investors – and we are not even talking about tenfold or twentyfold growth. The profit can reach 10,000%, in rare cases – even 100,000% and higher. Quick profit potential. Despite the fact that we previously mentioned a period of up to 5 years for return on investment, the first profit can come much faster – already in the first week. Anonymity. When buying tokens, you can not identify yourself. Many consider this a serious advantage of ICO. Minimum investment. As we have already said, many companies make the cost of one token less than $ 1, sometimes even less than $ 0.01. At such prices, anyone can invest, this is a good way to try your hand.

Disadvantages of ICO for investors

As with any investment, there are serious downsides to this.

Fraud. It is quite easy to post information about a project on an ICO without having the slightest desire to actually implement it. Fraudsters create a fake project, take the money and disappear. It is quite difficult to distinguish such projects from real ones only by documentation. High risk. In addition to fraud, there is a high risk that the blockchain project you invested in will simply “not take off”. Less than 10% of projects become successful. Complete lack of legal guarantees. Around the world, legislation has not yet been adapted to regulate the ICO sphere. Therefore,you take all the risks when investing.