Initial Coin Offering Investment – Pros & Con
In the last decade or so, many new exciting opportunities opened up for investors to take advantage of. Technological advancement, together with innovation brought forth new pathways for business owners to present their projects outside of known boundaries.
Initial Coin Offerings (ICOs) is one of them, combining Blockchain solutions with more traditional fundraisers through cryptocurrencies. In this review, we go over these crowdsales in terms of their advantages and disadvantages that you, as an investor, should be aware of.
What are ICOs?
Digging deep into the matter, ICOs came out as a result of blockchain boom in last few years. The entire concept revolves around the cryptocurrency funding of the business, without a need for fiat money involvement. Thus, the ICO project is the one that requires investments made through digital coins only, instead of regular GBP or USD deposits.
You deposit bitcoins or other altcoins in exchange for a new token/coin. The process would either grant you special rights within the new platform and/or bring you a growth-driven online asset that you can sell for a higher price in near future.
The idea is to increase privacy and security that investors may enjoy while expanding the market towards the singular globally driven industry. One of the very first (and most famous) ICO is, of course, Ethereum, which gave birth to online smart contracts back in 2014.
At this point, most ICOs would require small or large batches of popular cryptos, such as bitcoin and Ethereum. Some projects might allow you to use the regular money, though these are a rare sight at this time.
How Different Are They From Regular Fundraisers?
One of the main reasons some organizations opt for ICOs instead of regulated fundraisers is the option of privacy. Many projects that seek out investors would wish to keep their identities secret, especially from governmental bodies. In this way, tax implications, as well as other costs would be omitted.
Additionally, in case of default of the project, ICO owners are not obliged by any legal means to fulfill their end of the bargain and return digital coins back to their respective holders. Some countries even permit such practice due to the lack of regulations concerning cryptocurrencies. This is currently the case with the UK, while such business practices are not possible in USA or EU.
Moreover, looking at how disrupted the entire market is, the data available might contradict itself at different sources. ICOs are not managed by financial institutions in many regions of the world, thus there is no singular source where information regarding all projects can be found. Some website unofficially collect data regarding ICOs but do not cover the whole industry, which is not the case with traditional crowdsales and fundraisers.
Brief Market Analysis
Judging from the bitcoin’s value decline, many thought that ICOs’ worth would go down as well. Not only it did not happen as value is growing tremendously. Looking at the graphs by ICO Watchlist, in June 2018, ICOs brought in more value than in the whole of 2017, passing $6.7 billion marks and counting for the entire year.
More importantly, it seems that the UK is one of the top destinations for ICOs to take place, taking more than 10% of the market share. Businesses vary across industries, many seeking out the privacy and easy of fund collection that Initial Coin Offerings provide if we consider data from ICO Watchlist.
It seems that the decline of the cryptocurrency industry does not affect the ICO market nor it shall. We can safely say that cyber fundraisers will continue to exit and grow for a considerable time, so long as blockchain technology develops.
Suffice to say, a large portion of these projects are complete frauds, even in the situation where owners are known. There is no data regarding the overall value of lost funds through ICOs though a number of 10% of the entire market is often cited in many sites.
Drawing conclusions from our findings, ICOs still do offer advantages for investors. Looking at the table below, many tokens that are bought this way provide excellent ROI. Although these rates might be lower than in 2016, the return of over 100% in the matter of few months does give crypto funding an edge over traditional investments.
Data from ICO Stats
Additionally, it is quite possible to make large profits without compromising your privacy by simply buying and selling tokens. Many of these projects offer a marketplace where interested parties do not need to upload their personal documents or provide any relevant personal information.
Although highly attractive, we do have to mention how secure the market is. In many cases, investors were scammed and their cyber money lost. Several projects that had great ideas and sound system to back it up turned out to be complete frauds, taking coins from parties, never to be seen again. The best example is Modern Tech projects, Pincoin and iFan, racking in over $600 million from unsuspecting victims.
There are also risks concerning those fundraisers that are "white" and regulated. Tokens might not rise in value for a considerable time and die out if exchanges do not pick it up. Even if the organisation is legitimate, its business idea did not live up to the expectations, losing your funds and time.
Lastly, many ICOs do not succeed, which might result in the return of your coins. Such development carries costs of transfer through network fees. Although not large, investing in several unsuccessful projects can bring ruin to investors' savings.
It is quite risky to indulge in ICO investments. Many turn out to be either a fraud or a failure, depending on the company behind the project. We suggest a thorough analysis of the whitepaper to be conducted, looking at the next few factors to ensure you are working with legitimate organisations.
- ICO team is known
- fundraiser operates under the guidelines from financial institutions
- the business idea is sound and doable
- token shall be listed in several online exchanges
- future prospect of the business has a great potential
- operations are sufficient enough with goals of expansions
In a situation where you do encounter a fraud, we at Finance Recovery do provide services that would help you gain your funds back and prepare for future projects a whole lot better. You might also want to read our blog regarding binary options since the market has similar issues that the cryptocurrency industry faces.
Visit financerecovery.org and discuss with an agent on how best to recover your lost funds.