ICO stands for ‘Initial Coin Offering’ and it’s a type of funding that centres around the use of cryptocurrencies.
The idea is that if you’re looking to start up a new cryptocurrency system but you don’t have the necessary funds to make the currency, you can raise it basically by crowdfunding.
You make up a document that outlines how your cryptocurrency will work and then you promote it online and ask for donations.
These donations will then hopefully come in the form of other cryptocurrencies and in exchange, you send the donors some of your product.
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It’s a great system because it doesn’t involve you surrendering any ownership of your company which you may have to do if you get a loan from a bank or some other method.
If things work out your cryptocurrency will end up in circulation and your business will grow from there.
These ICOs are becoming increasingly more prevalent and due to the way they grow after the initial distribution, they have become popular among investors too.
Investing in an ICO is likely to be a worthwhile investment, however like anything, there are certain factors that you must consider beforehand. Here are three important things to think about.
1. Evaluate the Use Cases
This document that I discussed earlier is known as the whitepaper and the goal behind it is to outline why this new cryptocurrency will be useful.
If you want to get the best out of an ICO investment, you sort of need to invest in it early so that you can benefit from its expansion.
This means that you won’t be able to determine how successful it actually is because it won’t have reached a point where it can become successful.
So you will have to decide for yourself whether or not you think it’s something that is worth your investment of time and money.
Cryptocurrency is an industry that is actually quite difficult to gauge. With the likes of the technology industry, or the oil and gas industry, there are reputable methods for success.
Because cryptocurrency is so known and its effectiveness is a topic of debate, you can’t easily decide how a specific ICO will progress.
What you can do, is analyze the whitepaper and learn about how educated the people behind the ICO are.
You can see if they have an understanding of the industry and if they are confident and logical about why it will be useful.
If you understand cryptocurrency yourself you’ll be able to study this from a more educated perspective.
Decide which ones you think have the most chance of being useful and growing in a positive way. It will still be a risk, but at least it will be one that you’ve given thought to.
2. The Team
This is pretty much a given, but I feel like I have to say it anyway. You need to know the type of people that you are giving your money to.
The biggest reason why something like this will end up failing will be on account of the people running it not knowing what they’re doing.
You can find out about the team behind a specific ICO if you research online. You should be able to find various social media profiles including LinkedIn.
Hopefully, through research, you can discover what other projects these people have been involved in and how well those projects did.
If they have a good reputation and a recorded history of being involved in ICOs, then it would be a wise decision to invest.
If not, then you should definitely reconsider. If their track record is bad then the likelihood of this new ICO working out is pretty slim.
And if you can’t find any information on them whatsoever then that’s arguably and even worse sign.
Either they’re completely new to the world of online business, or they’re are actively trying to hide their past failures.
This is not to say that an ICO run by less experienced people is certain to fail, nor is it certain that an ICO run by experienced people will definitely succeed.
But since you are running somewhat of a risk anyway, you should definitely try to minimize it as much as possible.
And for ICOs, this means putting your trust in people that do have a history of success and good work.
3. Legal Aspects
You should never invest in anything unless you are familiar with the legal aspects of the company behind it.
Because these ICOs tend to be independent, a lot of them don’t focus on important things like hiring legal experts.
You would often find that an ICO might not even have its terms and conditions drawn up and posted on their website.
The legal aspect of something like this needs to be taken very seriously and sometimes that just doesn’t happen.
When you’re investing in other, more well-known companies, such as the ones on the Aristocrats List, you can usually be confident that everything is in order legally.
That’s not the case with ICOs. There’s a lot of documents and permissions that a company needs to have before they can start up an ICO.
Sometimes they don’t know about all of that stuff and sometimes they just try to get away with not paying attention to it.
Make sure you get all of the information about the legality of the ICO before you invest. And if it seems like they haven’t gotten all of the legal aspects together then pick a different one.
As you may have guessed, I think that ICOs are a bit of a tricky business. But they’re also on the rise and are worth the investments if they succeed.
You just need to be very careful about where you choose to invest. Only go for the ones that seem like they have a high chance of success.