Share with your friends:

If you have been in the crypto space for a period of time now, one of the ways to earn an exploding amount of profits is to participate in Initial Coin Offerings (ICOs).

As the name implies, ICOs are inspired by the more commonly-known Initial Public Offerings (IPOs) but in practice they are different. Before we consider investing in an ICO, let us explore and understand the differences between ICOs and IPOs.

Initial Public Offerings Initial Coin Offerings
Commonly referred to as a public offering. Known as an unregulated way of raising funds for a new cryptocurrency venture
Stocks belonging to private companies/entities are offered to the public for the very first time. A percentage of tokens are allocated for public sale during an ICO campaign to the early investors of the project in exchange for legal tender or cryptocurrencies such as Bitcoin and Ethereum.
Purpose is to raise capital to expand or to be publicly traded. Purpose is to raise capital from the public to fund their project/ start-up.

With so many ICOs happening in the industry, it is good to know which are the ones to invest and which to avoid.  At a higher level, what are some key considerations we should consider before investing in an ICO?

  1. Legal Status
    Do you know what is the corporate structure of the company? Did the whitepaper states what rights do you have as an ICO investor? Are there any conflicts of interests or security risks from key members of the team? [1] Does it comply with Anti-Money Laundering?
  2. Coin Supply
    Is the digital token supply fixed or mineable? How many tokens will be issued in total? You need to understand the allocation of coin supply because it will affect tradability and your ability to sell off your token when you want to. [1]
  3. Security
    Security is the most important part of any digital token. Investors need to know the strength of the blockchain protocol and digital token encryption used so that it will not be vulnerable to cyber attacks. [1]
    (Image: List of PoW 51% (Proof of Work Mining) Attack Costs for Each Cryptocurrency[2]Is the token’s blockchain hackable or demonstrating a security and disclosure of vulnerability? )
  4. Market Demand
    Is there demand and enough tokens available to the public? Is it globally traded? How is the interaction between the team and the community? Is the company funded by venture capital firms?
  5. Project Scalable
    Is it scalable which allowing for growth? Does it have a mechanism for raising funds for future development?

Majority of the ICOs in the marketplace are campaigned by newly created start-ups or companies that do not have any prior experiences. No matter how good their business plan is illustrated to be, investors should always take measurable precautions. Are you willing to take this investment risk? Let us know in your comments below.

References

  1.  Heong, S. K. (2018, January 03). What Is An Initial Coin Offering (ICO) And Should Singaporeans Get Involved In One? Retrieved from https://dollarsandsense.sg/initial-coin-offering-ico-singaporeans-get-involved-one/
  2. List of PoW 51% (Proof of Work Mining) Attack Costs for Each Cryptocurrency. (2018, June 02). Retrieved from https://bitcoinexchangeguide.com/list-of-pow-51-proof-of-work-mining-attack-costs-for-each-cryptocurrency/