One of the most popular acronyms used recently within the crypto ecosystem is ICO which means ‘Initial Coin Offering’.
An initial coin offering (ICO) is a means of crowdfunding the release of a new cryptocurrency. Generally, tokens for the new cryptocurrency are sold to raise money for technical development before the cryptocurrency is released. This is similar to the Initial Public Offering normally carried out by traditional companies, only that ICO retain some major differences. These differences are usually informed by the inherent characteristics of the general crypto ecosystem. For instance, unlike an IPO, there is little or no government regulation of an ICO.
The ICO frenzy and the rise of BTC and ETH
Just recently, the entire crypto community was awash with the spread of ICOs. Several claims of new programs being developed, especially on the Ethereum platform gave rise to a very busy marketplace where numerous ICOs were launched. This development arguably played a significant part in the unprecedented growth of both Bitcoin and Ethereum in the last few months.
ICO specialist, James Sowers tells TTMNews that the significant rise in price of Bitcoin and Ethereum is as a result of the huge demand created by the public who tries to participate in one ICO or the other.
“The price of Bitcoin and Ethereum ran up due to the fact that they are the acceptable means of transaction for participation in the ICOs. Investors are required to buy either Bitcoin or Ethereum in other to participate in these ICOs. Increased demand caused a type of scarcity for these cryptos, therefore, the fundamental law of demand and supply took its course and prices skyrocketed.”
A mixed community
The increase in price of both BTC and ETH was responsible for the cold feet of investors towards subsequent ICOs due to the fact that the cost of participating became too high for so many.
As is common with every new innovation, there are always con artists who infiltrate the ecosystem, take advantage of people’s ignorance or emotions to swindle and defraud such victims of their money.
Especially as these ICOs were not regulated by any central authority, any individual or group could come up with any program or product with all manner of claims, taking advantage of unsuspecting victims.
Despite the actions of scammers and swindlers, several genuine products have also been developed, sincere ICOs have been prosecuted and participants fulfilled. This leaves newbies and willing investors confused as to how they would differentiate between scams and the real deal.
Co-Founder of Helium, Jason Cassidy outlines three simple steps of identifying genuine ICOs. According to Cassidy, in order to identify the genuineness of any ICO, an investor should:
1. Identify what problem the technology/platform/currency is addressing
Cassidy explains that there must be a clear ‘need’ that is being fulfilled, a market for the solution and ideally the long term vision to get it there. Investors should read the whitepaper, look at the roadmap and research the industry on what the currency and Blockchain are addressing.
2. Find out who makes up the team
Cassidy stresses the importance of personalities behind any given project.
“At the end of the day, the project will go as well as the team that is behind it giving leadership”, he says.
Cassidy advises any investor to do a background check on the team, look for transparency, previous work experience and signs of emotional maturity. He notes that if there is a lack of business experience on the core team, handling adversity or a large increase of wealth would be a difficult task.
3. Listen to your gut
At the end of the day, one can pour over hours upon hours of research. Smart investors will learn to trust their gut instinct. If it looks like a risky investment, it likely is. This is the Wild West 2.0 right now and one of the emotions such as fear and greed, vet the team and the technologies and you should position yourself for success.
Looking into the future
Generally, the ICO concept is a good way to iterate on the original blockchain and provide funding for improvements to the ecosystem.
However, in Sowers’ opinion, it is difficult to predict a future as various forces come into play in determining the market trend, especially in an unregulated environment as we have with cryptocurrencies. Nevertheless, he emphasizes that investors should read the white paper of any given project and decide if the ICO, smart contract or tokens use makes sense.
He concludes by pointing out that blockchain technology and ICOs are in the early stages similar to the internet in the early 1990s. There will be wild price swings in cryptocurrency and a lot of growing pains . Blockchain technology is part of a new digital revolution that will survive as far as the price of Bitcoin, Ethereum and others.