Blockchain, mining and cryptocurrencies are probably the hottest topics in tech out there right now. Even Burger King now has its own cryptocurrency, aptly named ‘Whoppercoin’, what is that all about? In this explainer, we delve into the uncharted territories of ICO. Do you need to issue your own tokens and why would you do that in the first place? Read on to find out.
What is an ICO?
It’s in the name: ICO, or Initial Coin Offering, is a process in which a company issues tokens — which is a name for currency in crypto world — which you can buy in exchange for said company’s services or products in the future. An investment of sorts, just like its ‘real-world’ brother, IPO.
In its essence, ICO is a type of crowdfunding. Investors, in this case ordinary people, finance the product they deem worthy to gain profit later on.
According to Smith + Crown, in 2017 alone ICOs attracted $180 million worldwide. This is more than 2016 with $101 million, and 2017 is not over yet.
Why would you need one?
If you own a startup, issuing your own cryptocurrency might give you a headstart — the funds you collect can be converted into bitcoins or real-world money, which normally helps run businesses.
If you’re investing, here is what you can expect:
- If the project grows, you’ll be able to sell the tokens for a higher price;
- Buying stuff from the company you’ve invested in is cheaper later on;
- Personal motivation from investing in something interesting.
How to choose the right one to invest in?
To avoid making the wrong choice, you should pick the project very carefully. Here is a list of things you should generally pay attention to:
- The project’s site should answer as many questions as possible: its mission, plans, team, advisors and so on.
- A well-thought strategy. The company behind ICO must clearly understand and state why does it need tokens.
- Whether the project belongs to a sizeable cryptofund. That’s a good sign: funds typically acquire every worthy ICO.
- Reputation. Scout the cryptocommunity forums to find out who the peoplebehind the idea are.
Here’s a nice grid that helps you tell if an ICO is worth your money:
The grid consists of 9 slots with positive and negative factors. It measures the risk your money will be under if you own a lot of coins of one particular project.
The greater the sum raised by a project in the red squares, the higher the risk of it failing and you money burning. Such projects become even less stable during growth.
This works both ways: the bigger the sum collected by “green” projects, the lower the risk.
The biggest example out there is Ethereum, which ran its ICO back in 2014. Is started at $0,3–0,4 per Ether and climbed to $20 by July 2015. It is over $200 now, the second most valuable cryptocurrency.
The first ICO ever ran was Mastercoin in 2013. The project developed bitcoin-based fintech soft.
MaidSafe, another project aimed at hacker attacks prevention, attracted $6 million in mastercoins and bitcoins during its ICO.
May 2016 went down in history as a triumph of DAO (Decentralized Autonomous Organization). The Ethereum-based fund attracted more than $150 million during its fundraising campaign. It suffered a hacker attack, though, losing roughly $40 million. Even though the developers managed to get most of that money back, the project lost many investors which went on to create their own tokens, Ethereum Classic.
There are also examples of companies that have had a successful ICO but failed later and returned back to normal nevertheless. One of them is the famous Dogecoin, which dropped significantly after Alex Green, the founder of a dogecoin exchange called Moolah stole the invested funds and faced prison. After that, however, the events evened out and the currency soared in the summer of 2017, with the rise of mining. Lately it has dropped a bit again, but this is something every cryptocurrency faces: the Chinese cryptoexchanges ban affected them all.
The notorious Josh Garza behind PayCoin promised to revolutionise the cryptomarket, but shortly after came under the police investigation and on June 1st, 2017 got 20 years in prison for fraud.
Don’t be like Josh.
How to take part?
It’s pretty easy. Check out the list of upcoming ICOs on Icostats. Find the project that suits you, check the team and its background.
Another way is to put your money in one of the trustworthy cryptofunds, avoid the unknown ones. They work by investing your money in several projects simultaneously, diversifying your risks. Satoshi.fund is one of the first and trustworthy ones.
How much can you make?
It really depends, and the obvious thing here is that the sooner you invest, the bigger the profit — if you chose right and gained one at all. Here’s a graph to show you how much money is being thrown in and made in ICOs:
Is Bitcoin price drop bad?
Well, it’s still highly unstable, so the short answer is no, it’s typical. On 15th of September, 2017 it plummeted, losing $800 in one morning. This came after the news about the Chinese cryptoexchanges ban.
Even though China has toppled the balance, there’s nothing critical going on: new ICOs will stabilise the rate and bring everything back to normal.