ICO is selling a new digital
currency at a discount or a token as part of a way for a company to raise
money. If the cryptocurrency succeeds and appreciates in value often based on speculation, just as stocks do
in the public market the investor has made a profit.
In the stock market, the token does not confer any ownership
rights in the tech company or entitle the owner to any sort of cash flows like
dividends. Buyers can range from established venture capitalists and family
offices to less wealthy cryptocurrency zealots.
Investing in a digital currency is extremely high-risk more so
than traditional startup investing but is motivated largely by the explosive
growth in the value of bitcoins, each of which is now worth around $4,000 at
the time of publication. That spike helped introduce both fanatics and
professional investors to ICOs.
We’ve
seen over $2 billion in token sales in about 140 ICOs this year, according to Coinprice, quieting arguments made by some that ICOs are merely a flash
in the pan likely to fade any minute now when a new fad emerges.
It
can feel like ICOs are everywhere at least a few typically begin every day. Buyers during a presale period might email a
seller and personally conduct a transaction. Later on, a purchaser tends to use
a website portal, hopefully one that requires an identity check like Emma Channing.
The froth and the
attention around ICOs is masking the fact that it’s actually a very hard way to
raise money.”
“I
don’t think that there’s been an obsession of Silicon Valley that has overtaken
seed and angel investing in a single year,” said Channing, who helps companies
execute ICOs. She argues: “I don’t think Silicon Valley has ever seen anything
quite like ICOs.”
Channing
said it is possible that more than $4 billion will be raised through ICOs this
year. But she advises that ICOs are typically only successful for the very
small number of companies that have “blockchain technology at their heart.” ICOs commonly fail when that’s missing or when the marketing and
message are poor.
The
froth and the attention around ICOs is masking the fact that it’s actually a
very hard way to raise money.
There's
very little regulation on ICOs in America, meaning as long as you can get
the tech set up you're free to try and get your currency funded. Right now
cryptocurrency as a whole is kind of like the wild west there's gold in
the hills and relatively little law to speak of. This can work in your
favor or it can lead to getting swindled. Of all avenues of funding, an ICO is
probably one of the easiest to set up as a scam. Since there's no
regulation there's nothing stopping someone from doing all the work to make you
believe they have a great idea, and then absconding with the money.
The first thing to do is make sure that the
people putting up the ICO are real and accountable. In the internet age its
beyond easy to find a stock photo and put together a convincing website, so
going the extra mile is important. Some things to look for: What history
do the product's leads have with crypto or blockchain? If it looks like they
don't have anyone with relevant experience that can be easily verified, that's
a bad sign.
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