Cryptocurrency ICO’s: what is it?

Cryptocurrency ICO’s: what is it?

One of the last trends among the most aggressive investors are the ICOs (Initial Coin Offering) of cryptocurrencies. What are they exactly?

Since Bitcoin’s birth, thousands of new cryptocurrencies have appeared on the market. As it happens with businesses, most of these new cryptocurrencies are not successful, but if you catch one that is, you can get a really high profit. In other words, this is risk and profit in full swing.

What is an ICO?

The ICO process is a way to gather money to invest in a business. Its like buying stock from a new company, but without having voting rights or the right to receive dividends.

Who makes ICOs?

ICOs are usually made for very innovative start-ups whose business is based somewhat on technology.

Why do a company make an ICO?

Making an ICO is very convenient for companies, because it allows them to raise money without many obligations. If things work, both the company and the investors will benefit, and if it doesn’t work, the company will not have any debts: Perfect business for them!

Why do people invest in an ICO?

Even when the risk is extremely high and the rights of the investor are close to none, investing in ICOs has some advantages.

The main one is that, typically, you can invest a very small amount of money. As a result, for many investors it is almost like a game in which they try to become rich in a stroke of luck.

The idea behind the cryptocurrency investment is that the coin created will be used in the future at the service of the company, so the value of the coin will raise with its use, which is thanks to users’ demand.

For example, a company wanting to create a platform to trade real estate properties can use its own cryptocurrency and force their users to use it in order to create advertisements on the platform, contact other users, etc. If the platform becomes successful, many users will want to purchase this new currency and its value will raise.

In addition to that, since ICOs are listed in cryptocurrency markets, speculation is also an important factor. Often, currencies gain a high value just because the market expects that they will work in the future, and not because they are working now.

What main factors you should look at before investing?

Companies create whitepapers to inform about their ICO philosophy. In these, you will get information about what they intend to achieve and what the cryptocurrency will be for. If you think the company has a good idea, this is a good start.

Then, you should check the team following the ICO. Here, it is important that you can trust in those names, checking each member’s background. Technical profiles are important because the company will likely be technological, but marketing is at the same level since you need the currency to be well-known and desirable.

Then you can try to check for competitors. Are there companies offering similar solutions? How are they performing?

These aspects are not comprehensives. There are so many things to check to mention them here, but is a way to start. Summarizing you need to check everything you think will affect the future value of the currency released in the ICO in currency exchanges, which needs to put together popularity and a good company.

Is it for you?

If you are not familiarised even with Bitcoin, investing in ICOs would be like betting on the lottery. Remember Warren Buffet’s words: “Never invest in a business you cannot understand.”

Even if you are an expert, you should keep in mind that the success ratio is very low, so the share of your investment budget used in ICOs should be minimal.