Cryptocurrencies have opened a new way for investors. In recent years, people are more interested to invest in cryptocurrencies. Some investors also invest in initial coin offerings of a cryptocurrency. This is a form of fundraising from the public by offering them a virtual coin in exchange for money.
This is quite similar to the initial public offering of a company in the stock market. The key difference is that ICOs sell digital coins whereas IPOs sell shares of the company in exchange for money. Here you will find some important things that you need to know about a crypto ICO.
Many people regret that they have missed the opportunity to invest in bitcoin or other popular cryptocurrencies. They invest in ICOs with the hope that the new cryptocurrencies can return profits like bitcoin. However, ICOs are highly risky and vulnerable to potential scams. Now let us understand what exactly an ICO means?
What is an ICO?
Let us understand ICOs with a simple example. Consider that you came up with an idea to create your cryptocurrency and you want to raise funds for your startup. Now how can you raise the required capital? First, you can take loans from the banks or you can go to venture capitalists to raise funds. What if you don’t have to pay interest for bringing money, then ICO is a great way to raise funds.
Let’s say the digital currency you want to create is named as XYZCoin. Now to enter an ICO, you need to write a detailed document (called whitepaper) that explains how the coin will work and other details about your startup. You need to create a website where you provide the whitepaper and other essential details to the public. Then you can offer your crypto coin to the public in exchange for money or other digital tokens (like bitcoin).
Now if someone wants to invest in your digital currencies, the investor will not get shares of your company. It is just that the investor is risking his/her fund on your worthless digital tokens with the hope that the value of the digital token will rise in the future. This is the key difference between IPOs and ICOs. Follow bitqt for investment guidance in cryptocurrencies.
However, if you want to invest in ICOs, then here are some important things that you need to know about it.
The whitepaper is the official document of a cryptocurrency released on the website. It contains the purpose of the crypto coin and its real-world use. As an investor, you need to read the document carefully and research more about it from different social media platforms and check the authenticity of the digital token. You also need to evaluate the value of the digital token at present and for the future. If you find that the value will increase over time then only invest.
Minimum Viable Product or simply MVP means it is the most fundamental functionality that can test the primary version of the project’s assumptions. Analyze whether the MVP readiness is solving some real-world problems.
3. Competitors of the ICOs
Before you invest in any ICO, it is crucial to analyze its competitors. Research for other projects which have similar solutions for a problem. If you find a competitor, thoroughly analyze the competitor’s profile, its performance, and how different it is from the new ICO.
4. Consider the Pros and Cons of ICOs
As you are going to invest your hard-earned money. You need to evaluate the positive and negative news of the coin and decide based on whether you should invest or not.
5. Review the Team Behind the ICO
Understand the core value of the team from the website. Read about them, their background, and how they came into this place. You can check their profile on different social media platforms and their websites to know about them.
Investing in initial coin offerings is highly risky. So, if you want to invest in ICOs, then make sure that you thoroughly research everything about the company. Check out the profiles of every team member of the project and their background in the crypto community. Avoid investing in ICOs, if you find any form of disputes.