Cryptocurrencies and blockchain have changed the financial world as we know it. What has started as a platform to trade cryptocurrencies has evolved into new horizons of the financial market. Crypto market now offers an opportunity to raise funds.
ICO (Initial Coin Offering) is a way to come up with money for a new cryptocurrency or blockchain-based project. The startup creates a white paper, which describes what the project is about, and how it will earn money. It also states the number of coins, which the initial backers will get to keep.
These coins are called tokens. They are very similar to the company shares, which are sold to the investors as part of the IPO (Initial Public Offering) transactions. In case the ICO is unsuccessful, the money is returned to the investors.
ICO legal advisers allowed us to take a deeper look into ICO in order to weigh all the pros and cons of the endeavor.
Benefits of ICO: What To Hope For
1. Tokens Can Be Purchased By Anyone
Tokens can be purchased by anyone who has a desire to participate in the ICO theme. You don’t need to prove your knowledge or expertise in the matter. They can also be sold internationally, creating an opportunity to take advantage of an increased buyer base.
2. Impressive Liquidity
As long as crypto exchange is functioning, the tokens are impressively liquid. In fact, they have a higher liquidity than company shares. Since crypto markets are transparent, you can view global asset prices in real time.
3. Easy Fundraising Opportunity
Virtually anyone can set up an ICO since token sales can be achieved through a variety of platforms. The ICO marketing cost is substantially lower than for other popular fundraising schemes. Hosting an ICO is much less time consuming.
4. International Participation
The appeal of ICO revolves around global accessibility. An ICO-launcher has access to investors from different geographical locations, making the reach for fundraising truly massive.
Risks of ICO: Don’t Miss Them
1. Fraudulent Actions
Private investors around the world are looking for opportunities to earn money through ICO but so do fraudsters. The hype around the ICO scheme is an ideal environment for fraud. The criminals take advantage of the investors who are afraid to miss the chance to earn money.
Investors are tempted by the offers of huge returns but they don’t realize that the safety of ICO schemes is still in its infancy. The promised plans are often unlikely to be realized. Code errors and token theft are also possible.
2. Lack Of Expertise
Since ICO is still very young, not many investors have deep enough knowledge of the scheme. That’s why it’s often hard to estimate the risks of the project. Some investors make a mistake of grabbing a murky opportunity without studying the information closely. The lack of expertise in the blockchain technology leads to inability to tell profitable business models from unpromising projects.
3. Improper Transparency
The information ICO creators provide to the investors is rarely fully transparent. An investor may not receive sufficient details of the project, including the risks, token holder rights, and more. This makes evaluating the true value of an ICO almost impossible, increasing the risk of getting into a fraudulent scheme.
4. Speculating And Price Manipulation
Some investors hope to sell the tokens while they have a high price tag. This speculative approach to ICO causes high volatility of prices of tokens, which are traded on special platforms. These platforms are not financially supervised. The daily token price fluctuation is huge. As a result, the tradability of many tokens is limited, leading to the fraudulent price manipulation possibility.
Overall, it’s important to do as much research as possible about ICO before making an investment. The number of fraudulent schemes is currently high. However, they are possible to avoid with the right approach.