A new coin can be launched via a sale to investors during
its launch period, but is that process safe or could it be a scam?
If you want to know the answer to that you’ll need to know the
answers to questions such as:
- What is
an ICO? - What
is the difference between an ICO and an IPO? - What are
the risks of an ICO? - Where
does my money go in an ICO?
So, let’s go back to basics and understand just how safe Initial
Coin Offerings really are.
What is an ICO?
When comparing it with traditional finance, an initial coin
offering will work much like an initial public offering.
In an initial public offering, a company sells some of
their shares as means of getting money which will then go towards funding new
projects or whatever else they might need capital for.
As for an initial coin offering, developers who are about
to launch a coin or token will do an offering and sell some of their tokens for
a set price. By doing so, they raise capital and start getting their coins or
tokens out there.
As you would expect there are, however, some differences
between ICOs and IPOs.
What are the differences between an ICO and an
IPO?
By buying a stock from a company which is undergoing an
IPO, you gain a certain amount of power within that company.
This means that by doing so, you will own a fraction of
that company which in turn means that you can cast your vote if you hold enough
shares.
As such, if you are committed towards investing in a
company’s Initial Public Offering, you have certainly performed a lot of
research on the company, its ideas, projects, positioning, the industry in
which it operates, its short-, mid- and long-term plans, etc.
When it comes to an Initial Coin Offering, however,
sometimes investors will put their money down without even seeing a finished
product.
Consequently, the risk is greatly increased.
What are the risks of an ICO?
A major difference between an ICO and an IPO is that while
an IPO is heavily regulated by the Government or other entities such as the
SEC, an Initial Coin Offering isn’t regulated by anyone.
This in turn makes it so that pretty much anyone can create
their own ICO.
This clear lack of regulation, to put it simple, means that
there is nothing stopping the project to get your money and run off with it, a
scam known in the crypto universe as a “rug pull”.
What is a rug pull?
Rug pulls were a common phenomenon in the late 2010s as
many developers raised a lot of money and promptly ran away with it, never to
be seen again, simply because there weren’t any official regulations.
How can I know I am not about
to get rug pulled?
To avoid getting rug pulled you’ll want to due the maximum possible
due diligence.
You will need to know the project inside out: that means knowing
who the team behind the project is, what their goal is, how are they going to
achieve it (roadmap).
Where does my money go in an ICO?
When you take part in an initial coin offering, you will be
investing in a project and the money which you are providing will, in theory,
go towards funding said project and thus help the coin succeed.
Not having that initial investment will hinder the coin’s
success as it will certainly delay the implementation of specific features as
well as the coin’s advertising and marketing strategy.
How to profit in an ICO
By taking part of an ICO, you will also be granted early
access to the coin at a presumably cheaper price.
Once the coin launches and its price increases, investors
can sell at a profit.
Can I profit in an ICO?
An important point to take notice of, is that the vast
majority of initial coin offerings have in fact not been able to follow this
route as either their price fell after its launch, or the project never took
off as it was planned out to do.
Profiting in an ICO has been an extremely hard endeavor for
many. Given how risky it may be short-term, proceeding with caution is expected.
Wrapping up
When dealing with Initial Coin Offerings, one should always
have his eye out for scams.
Even still, ICOs can still be a very promising space in
which new and upcoming blockchains can be presented as they try to improve the
crypto universe.
As such, with rug pulling being a major con, many investors
will still take part in ICOs because, let’s face it, you’ll never know when the
next big thing is about to pop up.
And, in hindsight, wouldn’t you like to have been there for
Bitcoin in 2010 when it was traded between $0.0008 and $0.08 per coin? Because
we certainly would have.
A new coin can be launched via a sale to investors during
its launch period, but is that process safe or could it be a scam?
If you want to know the answer to that you’ll need to know the
answers to questions such as:
- What is
an ICO? - What
is the difference between an ICO and an IPO? - What are
the risks of an ICO? - Where
does my money go in an ICO?
So, let’s go back to basics and understand just how safe Initial
Coin Offerings really are.
What is an ICO?
When comparing it with traditional finance, an initial coin
offering will work much like an initial public offering.
In an initial public offering, a company sells some of
their shares as means of getting money which will then go towards funding new
projects or whatever else they might need capital for.
As for an initial coin offering, developers who are about
to launch a coin or token will do an offering and sell some of their tokens for
a set price. By doing so, they raise capital and start getting their coins or
tokens out there.
As you would expect there are, however, some differences
between ICOs and IPOs.
What are the differences between an ICO and an
IPO?
By buying a stock from a company which is undergoing an
IPO, you gain a certain amount of power within that company.
This means that by doing so, you will own a fraction of
that company which in turn means that you can cast your vote if you hold enough
shares.
As such, if you are committed towards investing in a
company’s Initial Public Offering, you have certainly performed a lot of
research on the company, its ideas, projects, positioning, the industry in
which it operates, its short-, mid- and long-term plans, etc.
When it comes to an Initial Coin Offering, however,
sometimes investors will put their money down without even seeing a finished
product.
Consequently, the risk is greatly increased.
What are the risks of an ICO?
A major difference between an ICO and an IPO is that while
an IPO is heavily regulated by the Government or other entities such as the
SEC, an Initial Coin Offering isn’t regulated by anyone.
This in turn makes it so that pretty much anyone can create
their own ICO.
This clear lack of regulation, to put it simple, means that
there is nothing stopping the project to get your money and run off with it, a
scam known in the crypto universe as a “rug pull”.
What is a rug pull?
Rug pulls were a common phenomenon in the late 2010s as
many developers raised a lot of money and promptly ran away with it, never to
be seen again, simply because there weren’t any official regulations.
How can I know I am not about
to get rug pulled?
To avoid getting rug pulled you’ll want to due the maximum possible
due diligence.
You will need to know the project inside out: that means knowing
who the team behind the project is, what their goal is, how are they going to
achieve it (roadmap).
Where does my money go in an ICO?
When you take part in an initial coin offering, you will be
investing in a project and the money which you are providing will, in theory,
go towards funding said project and thus help the coin succeed.
Not having that initial investment will hinder the coin’s
success as it will certainly delay the implementation of specific features as
well as the coin’s advertising and marketing strategy.
How to profit in an ICO
By taking part of an ICO, you will also be granted early
access to the coin at a presumably cheaper price.
Once the coin launches and its price increases, investors
can sell at a profit.
Can I profit in an ICO?
An important point to take notice of, is that the vast
majority of initial coin offerings have in fact not been able to follow this
route as either their price fell after its launch, or the project never took
off as it was planned out to do.
Profiting in an ICO has been an extremely hard endeavor for
many. Given how risky it may be short-term, proceeding with caution is expected.
Wrapping up
When dealing with Initial Coin Offerings, one should always
have his eye out for scams.
Even still, ICOs can still be a very promising space in
which new and upcoming blockchains can be presented as they try to improve the
crypto universe.
As such, with rug pulling being a major con, many investors
will still take part in ICOs because, let’s face it, you’ll never know when the
next big thing is about to pop up.
And, in hindsight, wouldn’t you like to have been there for
Bitcoin in 2010 when it was traded between $0.0008 and $0.08 per coin? Because
we certainly would have.
