Initial coin offerings, also known as ICOs, are a hot topic in the investing world. By July 2017, ICOs had raised more than a billion dollars, and the market capitalization had hit over $100 billion.
The cryptocurrency market has certainly caught the attention of many investors – especially those who are looking to make a quick buck. But there are concerns with ICO investments, particularly in the transparency department.
Before pouring your hard-earned cash into ICOs, it’s important to understand the advantages and disadvantages, and how ICOs work.
How ICOs Work
An ICO is similar to an IPO: funds are raised from the public to develop a project, startup or product. In this case, we’re talking about the sale of a newly created cryptocurrency. Here’s how ICOs work, according to ICObuffer.
“A company creates cryptocurrency tokens, which are then are exchanged to fiat currency (USD, EUR) or cryptocurrency of liquid value (Bitcoin or Ethereum).”
A token is a type of cryptocurrency. They can have a variety of functions, including giving access to the company’s services. But a token does not give you any ownership rights to the company.
Companies can release a wide range of tokens, but the most popular ones are:
- Credit type, which offers a specified annual percentage rate from the loan amount.
- Share value type, which allows owners to receive a portion of revenue on commissions from cryptocurrency transactions.
Advantages Of ICOs
ICOs offer some advantages to investors. For starters, they allow projects to completely forgo the traditional method of raising money, which is through venture capitalists and banks. Any person can invest in an ICO and, depending on the opportunity, there is the potential for a significant return on investment.
But of course, it’s important to remember than ICOs are still a high-risk venture. Still, many people are willing to take the risk, hoping to ride the wave of the “next Bitcoin.”
Concerns With ICO Investing
While there are certainly some pros to investing in ICOs, there are also some concerns. One of the main concerns is the lack of regulatory oversight. Regulations get a bad name, but they’re there to protect investors.
Because the market is still unregulated, it can attract some bad apples that run scams. Right now, it’s easy to raise money through an ICO. Just write up a white paper, and start collecting cash.
That’s why it’s so important to be cautious when investing in ICOs and to really do your due diligence. Another issue is that most ICOs don’t have a working product. Most only have white papers that outline how the coin will work.
ICOs have the potential to provide lucrative returns, but you need to find the right opportunity. ICOs have developed a bad reputation because scammers make headlines and turn people away from this type of investment opportunity. The best way to protect yourself is to do your research, do your due diligence and be aware of the risks. If it sounds too good to be true, there’s a good chance that it is.
If you are interested in even more cryptocurrency-related articles and information from us here at Bit Rebels then we have a lot to choose from.