If there’s one word on everyone’s lips in finance right now, it’s cryptocurrencies. If you’ve been blaming yourself for missing out on blockbuster coins like Bitcoin and Ethereum, you might want to consider investing in an initial coin offering (ICO). However, even in the best of circumstances, ICOs are extremely dangerous and have a significant risk of scam.
What Exactly Is an ICO
Consider this scenario: You’re a Silicon Valley startup with a brilliant new cryptocurrency system concept. Perhaps you’d like to digitalize and encrypt the payment mechanism for parents and babysitters. What a brilliant concept! Let’s name it BabyCoin for short. The main issue is that you’ll need people to donate you money in order to create the currency. You could go to a bank or try to find venture capitalist investors. But what if you could acquire funds without giving up any of your company’s ownership? Then there’s ICO.
This is how it goes. You construct a lovely website, write a white paper that explains why it’s a wonderful concept that could be very beneficial. And explain why it’s a great idea that could be very useful. Then you offer others to send you money (most commonly Bitcoin or Ether, but you may also accept fiat) in exchange for BabyCoin. They expect that BabyCoin will be widely utilized and circulated, hence increasing the currency’s value.
It’s crucial to know that, unlike an initial public offering (IPO), investing in an ICO does not entitle you to a share of the firm you’re supporting. You’re betting that the currently worthless currency you’re paying for will appreciate in value and earn you money later.
Who Can Launch an ICO?
Anyone can launch ICO. ICOs are currently unregulated in the United States. This means that as long as you can build up the technology, you’re free to try to get your currency funded. At the moment, cryptocurrency is similar to the wild west, with gold in the hills and little in the way of regulation. This can either work in your favor or lead to you being duped. An ICO is probably one of the easiest ways to put up a fraud out of all the funding options. There’s nothing stopping someone from putting in all the effort to make you believe they have a fantastic concept. Then disappearing with the money because there’s no regulation.
This implies that if you’re serious about investing in that new ICO, you’ll need to do your homework. The first step is to ensure that the persons behind the ICO are legitimate and accountable. It’s ridiculously easy to obtain a stock photo and put up a convincing website in the Internet age, so going the extra mile is crucial.
What history the product’s leads have with crypto or blockchain is one thing to look for. It’s a red flag if they don’t appear to have someone with relevant experience who can be easily verified.
How to Start Your Own ICO?
The most crucial thing is to ensure that you or someone else (possibly numerous people) has worked with and understands cryptocurrency and blockchain. Even if anyone can launch an ICO, that does not imply they should. You must be able to answer inquiries regarding every single detail of your ICO on the moment.
You should also consider whether you truly believe that an ICO will benefit your company. Essentially, after reading this post, you should seek advice from someone who can assess your exact idea and tell you if it is a slam dunk or not. If it isn’t, you might be better off seeking funds through more secure channels.
If you’re serious about moving forward, you’ll need a white paper. This is a document that outlines exactly what your currency can offer that hasn’t been done before. Or how you’ll improve on an existing notion. Like the white paper for Ethereum, one of the most successful ICOs to date, this piece should be interesting, instructive, and extremely comprehensive.
By the conclusion of the first page, you must have hooked the buyer, just like any other firm. The white paper for Ethereum explains what blockchain is before going into detail about how they plan to expand on Satoshi Nakamoto’s progress and create something new. By the conclusion of the first page, they’ve accomplished everything. Is it necessary to publish a complete history of blockchain in every white paper, including the moment that guy spent 10,000 bitcoins for a pizza? Probably not, but it should make sense to someone who has no prior knowledge of how these systems operate.
NOTE: An ICO is barely regulated, particularly in comparison to an IPO for a stock, so do your due diligence before you jump in to invest.
Marketing Your ICO
Now that you have your white paper, you must promote it. You’ll be attempting to reach two types of people: those who are familiar with bitcoin and ICOs. Those who are completely unaware. You should select the folks who are most enthusiastic about your new enterprise since they will be more willing to offer you money if it represents a good deal for them.
In the case of BabyCoin (again, hypothetically), we might reach out to some well-known mommy bloggers/vloggers. The purpose is to see if they have an interest in creating material to demonstrate why BabyCoin is the most significant advancement in babysitting since The Babysitter’s Club. Just make sure they reveal the nature of the offer when they advertise for you: the Securities and Exchange Commission (SEC) recently issued a caution to investors, claiming that it is illegal for celebrities to use social media to advocate ICOs without declaring how much money they received.
You’ll also want to make your programmers and leads available on social media sites like Reddit and Twitter to answer inquiries. You should also think about submitting your ICO to various sites that maintain databases of high-quality ICOs. This is how you get individuals in the cryptocurrency community excited about your product, which will ideally spread across the Internet.
Great! So now that the word about BabyCoin is out and people are excited, the only thing left to do is figure out the token pricing and distribution. You could also want to have a prototype to show that you know what you’re doing. Get your website and exchange up and running, and best of luck.
How Do You Determine Which ICOs Are Good?
Just remember to finish your homework. Because ICOs are so poorly regulated, you must exercise far greater caution than you would when investing in an IPO. Read the white paper, look at the team members’ backgrounds, and make sure they have experience with cryptocurrencies.
You can also rely on reputable sources like as Coinschedule.com, which only selects ICOs that they have researched and believe to be legitimate and fascinating. While you should not put your complete reliance in any website that provides a listing, they can be very useful.
Is Someone Going to Regulate ICOs?
In December 2017, the Securities and Exchange Commission (SEC) classed ICO tokens as securities, with SEC Chair Jay Clayton stating at the time that they had proven that they were securities “A token was a security under our federal securities laws since it was an investment contract. We came to the conclusion that the token offering was a financial investment in a shared venture with a realistic expectation of profit from others’ entrepreneurial or management activities.”
This indicates the SEC is preparing to take action against ICOs that they believe are deceiving investors. The first strike occurred on December 11, 2017, when the Securities and Exchange Commission (SEC) halted Munchee, a California-based meal review app. Munchee was trying to generate funds to develop a cryptocurrency that could be used to order food through the app. This is the first time the SEC has issued a cease-and-desist order for an unregistered securities ICO.
Finally, ICOs are a brand-new means of obtaining funds, and everyone is attempting to figure out how to use them without getting burned. If you think you can make a killing on a potential new ICO, make sure you do your research first. ICOs, like cryptocurrency, are all about taking on a high risk and reaping a high profit.