Although the benefits associated with ICOs are very attractive, there are some risks and drawbacks that should be considered before investing in an ICO. Here, you will learn the pros and cons of investing in ICO ( initial coin offering).
Advantages and Disadvantages of Initial Coin Offering (ICO)
The influence of cryptocurrency and blockchain technology is changing with each passing day. We have not only witnessed the strong interest of investors in the digital economy, but more and more people have begun to adopt cryptocurrencies.
There are many factors driving the adoption of cryptocurrency, some of the important factors include high security and safety, comfort and convenience of transactions, and ultra-low processing fees.
Realizing that the cryptocurrency and blockchain market segments can prove to be a reliable source of taxation, many governments, central banks, and regulatory agencies have also adopted an open attitude towards the cryptocurrency industry.
Regulations are being relaxed, and policymakers tend to strike a balance between the adoption of cryptocurrencies and the regulatory framework within which digital coins can flourish.
There are no fiat currencies or banknotes in cryptocurrencies but there are coins or tokens used in cryptocurrency, and they have many decimals to allow fractionalization.
Entrepreneurs raise money for their projects through ‘token sale’, also called Initial Coin Offering (ICO).
ICO (Initial Coin Offering) is the mechanism of raising funds to do business through the issuance of virtual currency. ICO is similar to Initial Public Offering (IPO) to raise funds.
An initial public offering (IPO) is the process by which a private company issues shares to the public in a new stock issuance. IPO is a traditional method of issuing stocks and raising funds.
Funds are necessary for the company to start new businesses and projects. Therefore, a “Token” is issued and sold to investors to promote new projects by using the funds obtained from ‘token sale’ for research and development expenses.
In this article, we will discuss the pros and cons of investing in initial coin offerings.
What is the Difference between ICO and IPO?
The concept of an initial coin offering (ICO) is similar to an initial public offering (IPO). Both of these processes are used to raise capital, in which investors are promised a certain return in exchange for their investment.
ICO is the cryptocurrency version of an Initial Public Offering (IPO) to raise funds for a project.
In an IPO, an investor receives shares of stock in the company in return for his investment. Whereas in an ICO, companies raise funds via a cryptocurrency token, there are no shares per se.
An ICO is about raising funds for a project and entering the market, and it is usually performed by startup companies. An IPO is usually done at a later stage when the company is financially stable and wants to expand and develop to the public.
In order to conduct an IPO, it must first be listed on the stock market. In this case, cooperation with security companies is indispensable, and it needs to pass a review that can be publicly listed. This process also needs to pay fees to the securities company.
In contrast, ICOs do not need to be listed or reviewed by securities companies. Even small venture capital firms with less credibility or less seniority can raise funds. And there is no need to distribute dividends or vote to shareholders. In other words, even small companies can raise large amounts of funds from all over the world in a short period of time without going through an intermediate third party.
Benefits of Investing in ICO
For companies, the advantages of raising funds through ICOs are very easy to understand. The benefits of investing in ICOs are as follows.
It is possible to get rich returns. The biggest benefit of investing in ICOs is the possibility of huge returns. The unit price of the tokens when the ICO was first issued is usually very cheap and can be purchased in large quantities. After that, as the success of the project progresses, the price of the tokens will rise, which will increase the assets a lot.
If you can seize the opportunity to sell at once while the price of the token is rising, it is possible to obtain considerable gains.
You can use ICO tokens to enjoy newly developed services. In addition to getting rewards from the sale of tokens obtained in the ICO, the tokens themselves can also be used as currency for value exchange.
For example, you can use tokens to purchase services or products from companies that have conducted ICOs.
Therefore, ICO is not just about investing money, but also choosing goods and services that you are interested in or want to use.
You can directly invest in companies and projects that you are optimistic about. When investing in companies and projects, people will invest because they want to support the company or project.
In the case of an IPO, you will support the company by buying stocks, but the securities company intervenes as an intermediary between the two. Of course, not only the company issuing the IPO but also the stock buyer will also pay the securities company the transaction fees.
Unlike IPOs, ICOs allow investors to directly invest in supporting companies and projects without the intervention of a third party.
Therefore, in principle, no fees will be charged for participating in ICO, and all funds obtained from ICO will be transferred to the company and project in the same amount. For companies and investors, this is an effective way to use resources.
Disadvantages of Investing in ICO
There are various advantages to investing in ICO, but there are also disadvantages and downsides to being aware of.
Many ICO projects have a low success rate. When the invested project is successful, high returns can be obtained through ICO. At the same time, of course, the investment project may not be successful, and may even fail.
Many times, the team dealing with ICOs is not experienced enough to handle demanding situations with the required efficiency and effectiveness. In this case, money may be lost or all the facilities originally promised by the company may not be obtained.
If the project fails, the tokens issued by the ICO will lose value and become worthless, and no refund can be obtained.
The regulatory mechanisms related to ICOs are quite lacking in substance. Therefore, if you lose money, regulatory agencies or legal provisions may not be able to help you recover your lost investment.
There are a huge number of scam possibilities. The possibility of encountering scams in the ICO world is very high. For example, despite continuous development, the development of the project is not smooth. If the project fails after hard work, it is fine, but sometimes there are some ICOs that have not planned to develop the project seriously from the beginning.
The laws related to ICOs are not perfect and the regulations are not so frequent. Therefore, it is easy to be used by malicious companies and organizations to cause uneven ICOs.
Therefore, before investing in ICO, you must do a good analysis. You have to confirm whether the services guaranteed in the white paper can really be realized or the development team or company take the job seriously?
How to Find an ICO?
So if you have read ICO Pros and Cons, and you are really interested in ICO and considering investing in ICO. So, how do you find an ICO?
Of course, finding information on the official website of the company implementing the ICO is the best and most orthodox method. However, it is often difficult for people to keep track of which company will do ICO in time. Moreover, ICOs are usually implemented by smaller companies and organizations, so it can be very difficult to find them one by one.
Therefore, what I want to recommend here is to learn to use a comprehensive website that intensively gathers ICO information.
A representative website that summarizes the latest ICO information is as follows.
- Foundico Blog
- ICO bench
- ICO watch list
- Base rank
- Kyber Network | Medium
- ICO drop
- Foxconn BC
- ICO Insider
- Coin Ninja
These websites summarize various information about ICOs, and the operators of the websites evaluate and rank each ICO from various angles.
It is recommended that you try to use the information displayed on these websites to select the scope of investment to some extent, and further investigate the currency you really want to pay attention to.
There is no doubt that ICO has many benefits for investors and organizations. This is a convenient way to obtain funds in exchange for providing exclusive benefits to subscribers. To minimize risk, the only warning you need to do is to conduct proper research and investigation.
Before subscribing to any ICO, you need to conduct a comprehensive study of the company’s background, projects completed in the past, quotations being processed by cryptocurrency exchanges, and various compliances followed by the ICO.
If you solve all these problems, then you should be able to get a generous dividend from your ICO investment.