The latest abbreviation in finance and crypto-world is ‘ICO’. A word that gives both local and global financial authorities like the U.S. Securities and Exchange Commission (SEC) nightmares for several reasons.
Not to be confused with Initial Public Offering (IPO) which is used by firms to raise cash through the issuing of shares to the public. An ICO (Initial Coin Offering) serves the same function and works like crowdfunding – but for digital currency and tokens only.
We recently covered a feature on raising funds and capital for a business but missed out on one relatively new method; more and more companies are using ICOs to raise capital for their businesses.
An Initial Coin Offering (ICO) is the cryptocurrency space’s rough equivalent to an IPO in the mainstream investment world. ICOs act as fundraisers of sorts; a company looking to create a new coin, app, or service launches an ICO – Investopedia.com
The concept of an ICO works similarly to how a company raises capital through shares in that it is all based on contrived value.
Funding raising in effect boils down to sales! If your actual product or service has nothing substantial or intrinsic to offer a client base, then it is nothing more than a scam. Launching an ICO is quite easy, and to an extent, many tech companies are now catching onto it.
If you still do not believe it is possible, just listen to this testament from someone who did it after unsuccessfully knocking on doors of conventional funders – the angel investors, venture capitalists and banks.
The alarming spurt rate of ICOs often brings with it a scourge of potential scammers which has had the SEC and other institutions step in to monitor and regulate them. Social media Platforms like Facebook and Google – which house a bounty of users (potential investors) have banned ICOs ads due to possible prey on unsuspecting investors; exposing them to con artists.
Basically, the scammers use fancy websites, laden with impressive figures and terminology to con users into buying into their coins or tokens (which could be as little as a few cents here and there but adds up if you have millions of people buying in) – once they have reached a certain amount in funding – they close shop and disappear!
So hypothetically speaking if one wanted to create a new coin called ‘DebunqedCoin’, one would perform the following three important actions:
- Create a product concept or Business Plan for the coin or what is called a Whitepaper (what the coin or token aims to do; the core technologies behind it; the team and their qualifications; the product’s lifecycle/growth path etc).
- Once completed and water-tight, the whitepaper would be submitted along with an application to one of the best Cryptocurrency Exchanges for review. Naturally, the business would need some initial working capital for liquidity – some raised by the owners and other institutions (through loans) etc. These will serve as collateral/insurance that there is indeed genuineness in the venture for all stakeholders.
- You must then assure your investors of a solid return on investment (ROI) and deliver – which goes back to sales and growth. Unless your offering is a scam you need to do some work! This comes with regular updates (marketing campaigns can have a tremendous or adverse impact on the uptake and price) on milestones reached to keep the investors abreast and in the process, possibly getting them to add more funds. Growing interest and addition of more funds creates demand for the coin/ token which, in turn, drives up the price and market capitalization. Voila! you would then be in business!
Here are some of the most successful ICOs of all time:
Known as “China’s Ethereum”, and backed by Microsoft, Alibaba and the Chinese government, NEO uses smart contract applications, but with the addition of decentralized commerce, digitized assets and identification.
It enjoyed a considerable hike in token value from $0.03 to $88.20, NEO has big things coming with a 294,000% ROI.
Unlike Bitcoin, the second-most valuable cryptocurrency in the world has more functionality than just being a coin. Its ledger technology is used to build and deploy decentralized applications a.k.a. “smart contract” technology.
Ethereum’s ROI has been nothing short of jaw-dropping at 230,000%. Having sold its tokens at $0.31, an Ether token now sits at a whopping $713, second in value only to Bitcoin.
The “premier privacy-focused cryptocurrency” enables users to send and receive currency worldwide with total anonymity, it’s currencies like SpectreCoin that have most government tax offices quaking in their boots.
If you had repurchased a token in November 2016, that puny $0.001 would be worth $0.64 today, or an ROI of 64,000%.
This UK-based start-up has craftily created a platform that is compatible with .NET and C#, and as a result, the product appeals to veteran users of Microsoft products.
Raising 915 BTC in 5 weeks, those who cashed in on the low investment of $0.01 per token have seen a titanic ROI of 56,000%.
With Ark, collaboration is the name of the game. The platform’s SmartBridge is a lightning-fast ecosystem designed to integrate other cryptocurrencies into its blockchain.
Investors were eager as any to buy in, and they have made a 35,400% gain given today’s token price of $3.54.
DGD, which stands for Digix Decentralized Autonomous Organization, is a self-governing community that gives out grants to different projects which will promote the growth of the DGX network.
At a current value of $346.88 per token, this gives them a return of 10,722%.
QTUM is an open-source value transfer platform which focuses on mobile decentralized apps or dapps. QTUM is the world’s first proof-of-stake smart contracts platform.
They hosted a highly successful ICO in March 2017, and since that time has seen an ROI of 6,400%.
For a cryptocurrency investor looking to make the most out of the host of new investment opportunities, while remaining cushioned from fraudulent ICOs and dodgy coins and tokens, the prospect can be daunting.
So, while there is no guarantee that any cryptocurrency or blockchain-related start-up will be genuine or successful, one needs to be vigilant and take steps such as getting to know the team; poring over the whitepaper with a big magnifying glass; monitoring progress of the token sales and just using common sense to gauge just how feasible the project is to ensure that you’re not falling for a scam.