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.
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.
An ICO is the cryptocurrency space’s rough equivalent to an IPO in the investment world. ICOs act as fundraisers of sorts; a company looking to create a new coin, app, or service launches an ICO — Investopedia.
The alarming spurt rate of ICOs often brings with it a scourge of potential scammers. The SEC and other institutions have to 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.
Though the tokens barely even cost a cent, it adds up if they have millions of people buying in. Once they have reached a certain amount in funding – they close shop and disappear!
Hypothetically speaking if one wanted to create a new coin called ‘DebunqedCoin’, these are the steps:
Create a product concept or Business Plan for the coin or what is called a Whitepaper. This describes in great detail 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 of this is 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 actually 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.
The above is necessary to keep the investors abreast with progress and in the process, getting them to possibly increase funding. 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. It does so, however, 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 is 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%.
The prospect can be daunting for a cryptocurrency investor looking to make money off new investment opportunities, while remaining cushioned from fraudulent ICOs and dodgy coins and tokens.
As there is no guarantee that any cryptocurrency or blockchain-related start-up will be genuine or successful. One simply needs to be vigilant and take steps such as getting to know the core team, poring over the whitepaper with a big magnifying glass. Naturally you should be monitoring progress of the token sales.
Most importantly, one must just using common sense to gauge just how feasible the project is to ensure that you’re not falling for a scam.
Remember, if it’s too good to be true, then it isn’t true!
Bitcoin (Crypto in general) is here to stay and every day, financial institutions, celebrities, and artists are endorsing it. It also has intrinsic value otherwise companies (incl. Microsoft) accepting it as payment for goods and services are either ballsy or just plain stupid!
Dealing with Cryptocurrency has its interesting dynamics. There are, however, many hidden facets making it still a mystery to the masses. Not knowing about it makes you prone to, get rich-schemes or outright scams.
We are all by now aware of the mania caused by the soaring prices and then, the subsequent decline that followed early this year.
What people don’t pay attention to, however, is finding out exactly just how complex it is to physically “acquire” and store these Cryptocurrencies.
Mining coins can be described very basically as the process where users “or miners” become part of a Cryptocurrency network. This by making hardware (PC processors and graphics cards) available to support that specific network’s operations.
As a miner, you contribute towards the working of the Blockchain. The technology requires millions of calculations to validate transactions into what are known as public ledgers.
There are three main ways to mine these coins but we will not be highlighting them in this post. The matter to be covered here, however, is the business aspect: how the Blockchain has created a new line of commercial entities and profit takers.
These modern tech “enterprises” offer a specific or cluster of altcoins and tokens as a reward for helping them maintain their Blockchain.
Sounds like a win-win situation right? Or is it?
Mining is hard
If you have actually looked into the main methods of mining you will discover that only miners with high-end hardware are able to produce enough power to contribute to the Blockchain. This is called “hash power” or “hash rate”. This is kind of like horsepower for cars, but for PC processing.
There are sites that illustrate how to calculate potential profits such as one conveniently called ‘what to mine’.
Your profit would, therefore, be the balance of the costs versus the revenue involved in mining coins – which is usually observed over a year to make a clear profit or loss assessment.
Mining profit = Revenue (quantity x price of the coin in local fiat currency)minus cost of the mining devices + annual electricity costs (measured in local currency per KWh).
The problem with going at it alone is that it is very hard to break even. You are also faced with a conundrum: the more powerful your hardware is, the more electricity it consumes.
It also takes a lot longer to acquire the coins which you are awarded by the respective blockchain network after successful hashing is completed.
To make it worth your while you would hope that the coin you mine’s market value exceeds the costs of the monthly/annual electricity bill.
There a now hundreds of these so-called Crypto/Tech companies spurting up by the day. Their modus operandi: to relieve you of the burden of the high electricity and hardware costs. This in exchange a monthly or once-off fee.
In return, they promise to mine coins and provide you with daily or monthly profits (payable in Crypto or in cash). They can do this because they presumably have bigger (and more powerful) mining setups and therefore benefit from larger economies of scale.
Some of these establishments use big rooms, whole buildings or even warehouses to run thousands of mining rigs throughout the year.
The payments you make supposedly help them with maintenance costs and pay for the said electricity bills. They are also usually stationed in countries where the cost of electricity is very low.
You are likely to, however, run the risk of dealing with the occasional Ponzi-scheme – setup. Such companies dive at the opportunity to swindle those not familiar with Blockchain and Cryptocurrencies.
By dazzling you with the price increases and potential astronomical returns which is public knowledge anyway, they take your money and make a run for it!
The acquisition naturally, would have been when they were dirt cheap, and are now offering the residue to make more profit off unknowing investors.
How it would work is: let’s say you owned 100 Bitcoins mined in 2010 for the opportunity cost of $100 each (cost of electricity).
You then sold half at the height of the Crypto ‘bull run’ in January 2018 when they were worth $19 000 each. You would have been $945 000 richer.
So, with almost a million bucks in the kitty and another 50 units of coins (which would be now worth a lot less); the natural inclination would be to look at ways to make the extra coins ‘work for you’.
And what better way than to be one’s own boss and head a Crypto company! You can with your new setup, sell off the residue of Crypto coins in bits for profits in cash.
This is likely what some of these companies offering coins for an opportunity to acquire Bitcoins. This under the pretense of partaking in a mining operation.
Meanwhile, in reality, the actual mining probably took place almost a decade ago!
All in all, do stay alert and do your research before parting with your money to join a mining pool or Crypto investment scheme!
On August 11 2018, the Bitcoin dominance level (market share) touched 50% for the first time in 2018. However, the move didn’t come amid a Crypto market rally. In fact, the cryptocurrency space has been in free fall until mid-August, moving in a sideways trend since then.