First of an ICO is an initial currency of Marco also known as crowd sales and is an important component of investment opportunities in cryptocurrencies and digital assets.
The founders of the projects carry out detailed technical documentation in the form of a white paper road map and go to the investor community to obtain necessary resources and thus develop their projects.
There are only a certain amount of coins that are those that are placed in the initial sale and depending on the nature of the project, different forms of payment are accepted, either with Bitcoins, Ethereums or in some cases also traditional currencies.
In some cases the ICOs are given in the form of votes in the project government model and do not acquire ownership in the project, what they acquire are Cryptocurrencies that can subsequently have some utility or rights to share the benefits generated by the project in which They are investing.
Each project makes its publicity by launching campaigns on social networks (Twitter, Facebook and other platforms) which has given rise to business opportunities by developing new platforms to concentrate information on launches, relevant events and comparison on the technical data sheets of the projects.
For example, the first ICO that was launched, was MasterCoin raising $ 5 million in BItcoin in 2013 and is now known as the OMNI platform after the success it had, other projects followed this same model.
Ethereum launched its mission and raised $ 18 million in 2016
Waves also had ICO and raised $ 16 million. Experience has shown that this is a good way to secure funds for the development of projects in the cryptocurrency space.
The difference from the ICO to the IPO (Initial Public Offering) is that the IPO shares are owned by the company, an action that can be traded privately or in the stock markets and the distribution mechanism is regulated as companies have to follow a series of legal requirements to be able to make the initial offer of shares, the companies do it within the regulatory framework of the government or the corresponding jurisdiction that constitutes a legal contract between companies and shareholders.
In the case of Cryptocurrencies it is a space with very little regulation and that has the advantage of allowing an open and much more widespread participation of small investors and the disadvantage of what there are many gaps in terms of jurisdiction and rights of those who participate in this type of Initial coin offers.
Depending on the investment objectives anyone can do it, the entry barrier is minimal in many cases with a few dollars you can participate in a vision, it is important to consider that many projects fail because they do not have the expected scope and success (unfortunately it will be the majority), therefore the benefit will be negative, and not achieving its capitalization objectives there will not be enough resources to develop a viable product. It is the same when they invest in venture capital, particularly in the area of technology, most companies never see their projects crystallize, however, if the projects were to have the desired success, there will be a beautiful return with magnitudes of between 5,000 and 10,000 %.
Let’s focus on reality and it is that there are possibilities of many abuses, the percentage of projects that fail is very high because there are few guarantees in this poorly regulated environment in which there is more and more innovation and more opportunities, for this reason they are technical projects that require some training and ability to understand technical feasibility in the design architecture of the platform.
Let’s look at some warning signs that the ICO you are evaluating can be a fraud.
- The developers or promoters of the project use pseudonyms or are few known in the community, have not stabilized a reputation in the Cryptocurrency space and it is natural to think that if you are not willing to put the name behind a project the temptation to That disappears with the money is greater.
- In the fundraising process the accounts are not secured with a scroll or are not resorting to the functionality of multi-signature accounts that ensures that several people have to authorize a transaction, generally it is people with good reputation or recognition in the community who They function as guarantees of these projects.
- It can be a scam or simply that it fails because they have unrealistic or very unclear objectives because they do not have a well-specified road map or established attainable goals.
- There is no transparency on the part of the developers … information on advances and new versions is frequently being published on the platforms, and if there is a group of developers who are not teaching the work being done it is very likely to be a scam, when we see that there is one or several warning signs in a given project we do not invest, the opportunities are many the risk is very high, so it is better to allocate our capital to projects that have the best potential, the best transparency and minimum guarantees that at least the effort will be made to develop the platform they are offering.
In conclusion, the purpose of the ICO is to: raise funds to finance projects, get resources to implement their vision, their purpose, their scope, the deadlines to reach the goal and obtain in exchange Cryptocurrencies, giving them the right to collect dividends and rights to the use of services of the platform to later commercialize it and to be able to resell those Cryptocurrencies once the initial sale is finished, obtaining that long-awaited benefit, it is only the appreciation for the utility of the Cryptocurrency.
Investment returns can be astronomical but remember that they are very high risk investments and you should not invest money that you are not willing to lose, be sure to carefully evaluate the technical aspects, potential, capacity and reputation as well as the commitment of people that are behind every project you invest in.