What is an ICO? What are the risks to investing & why you should be cautious!
It seems like a new ICO (Initial Coin Offering) launches every single day but what is an ICO? And should you get involved? Well the answer is a bit more difficult than just a simple yes or no.....
Firstly an ICO, which stands for initial coin offering, is a way for blockchain start-ups to raise funds for a new cryptocurrency venture. Usually the ICO will offer early backers X number of tokens in exchange for fiat currency or a different cryptocurrency such as Bitcoin or Ethereum. The funds you give them are then used towards the initiation or operation of the project.
So why would you do this?
Simple answer! It's because you want to get in right at the start and hopefully watch your money grow enough to quit your job and retire on the moon! Ethereum is a great example of a blockchain start-up which began life as an ICO. Backers were offered 2000 "Ether" tokens, Ether is the native currency to the Ethereum blockchain, in exchange for 1 Bitcoin which at the time was approximately $600. So if you were lucky enough to invest in Ethereum back in 2014 it means your initial investment of $600 would now be worth approximately $430,000. Nice!!!
So with that said it seems simple doesn't it, you buy into an ICO, HODL.....then BOOM.....profits!! Well not exactly. Here's just a two of the major risks you need to consider before investing into any ICO & what you can do about it!
Scammers!
Due to the cryprocurrency industry being largely unregulated, ICO's have been used by scammers and criminals as a vessel to acquire people's money or cryptocurrency. These scammers set up a simple website, attach a bogus white paper, make some outrageous claims which make the "project" sound amazing and voila! The money comes rolling in and honest investors like you end up with nothing to show for it so be careful!
Speculation!
Essentially when you invest in an ICO, you're pretty much investing in nothing but an idea. It's really difficult to establish exactly what things to look for in order to determine if the ICO is legitimate. Even if the project is legitimate you have to be sure that the development team behind the project had the skills and competency to finish the project off. Understand that nearly 90% of new start-ups fail and there are no exceptions to cryptocurrency. Make sure you can only invest what you can afford to lose.
So what can I do to protect myself?
There’s a hundred more risks to investing in ICO’s and unfortunately people don’t generally consider these either due to having a lack of knowledge or fear of missing out......Consider some of the following points before taking the leap.
· Does the ICO have a working prototype? It’s like every start-up in the crypto-world is launching a white paper without a working prototype. This is a massive risk so look as to whether the product is working or not and more importantly what are the benefits of the technology. · Is the ICO fund capped? Be wary of any ICO which is raising funds but doesn’t stipulate how much they are looking to raise. This indicates that the project hasn’t been very well thought through. · Who are the people behind the ICO? Be aware that some ICO’s have a huge amount of “advisors” on their boards. Don’t be fooled by this, instead look at who the founders are, look at who the developers are. Have they been involved in any shady ICO’s before? What’s their background? Do they have what it takes to see this project through? · What is the community like? Does the ICO have a following on social media? Are the followers engaged?
Some investors say to avoid ICO’s altogether and there is probably a good argument to say this is decent advice. Truth is you MUST be a savvy investor if you want to profit from ICO’s in the long run, this is not a crap shoot, and you don’t have to gamble.
Cryptocurrency as a whole is worth over 40 billion dollars which is huge. However, it’s nothing compared to the 66 trillion dollars currently in the stock market! We’ve got a long way to go and there’s no doubt that some of the most innovative blockchain idea’s are just around the corner so it’s time to get educated.
If you want to keep up to date with the latest ICO’s then visit [The ICO Ninja](www.theICONinja.com) today. We provide free reporting on the latest ICO’s to help you make the most informed and educated decisions!
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