The birth of the Bitcoin might have changed the way some companies do business, but it also led to the creation of an entirely new market. As the elusive man behind the new currency grew ever richer, competitors started looking into ways to cut themselves a large-enough piece of this pie.
Over the next few years, hundred of additional cryptocurrencies were to see the light of day. As of November 2017, the list counts more than 1170 entries and grows longer with each passing hour. Bringing a currency into the world is an extremely easy yet profitable endeavor for all involved parts. With the right mindset and a touch of luck, just about anybody could become a millionaire overnight.
Where Do Initial Coin Offerings Fit In All This?
Imagine your standard, run of the mill crowdfunding campaign. The internet has seen plenty of those since websites like GoFundMe, IndieGoGo, and Kickstarter became popular. Half marketing, half fundraiser, these attempts at turning dreams into reality soon became the favorite among younger entrepreneurs and smaller companies.
Whatever the product, the process remains the same. A startup business with a solid idea takes to the internet and asks humanity as a whole for financial support. The team in charge usually sets up a series of websites, run their own marketing plans, and invites strangers to invest in their plans and designs. What do these stakeholders get in return? They get the chance to put their hands on an innovative product ahead of the rest.
In layman’s terms, Initial Coin Offerings work in a similar fashion. A group who decided to establish a new cryptocurrency uses these approaches to source the funds needed to start the creation process. A limited amount of cryptocoins is put up for sale, often in exchange for an established physical currency, Bitcoins or another legal tender. These campaigns are also a great method to avoid dealing with banks and other institutions that might stop the funds from being transferred.
While cryptocurrency startups find in ICOs the perfect solution to the problems posed by early-stage financing, investors could also potentially reap the rewards of their efforts. An overwhelming majority of the people who bind a part of their savings to an ICO campaign do so with an objective in mind. Venture capitalists all over the world hope for an increase in the value of the tokens that they’re buying, so as to both cover their initial investment and to yield a sizable profit.
Not All Horses Finish The Race!
Unfortunately, ICOs don’t always bear sweet or even edible fruits. New campaigns are created and launched every day, but only an extremely small fraction of these reach the finish line. There’re a plethora of reasons why a newborn cryptocurrency might outright fail to hold its ground. The most common ones, though, are the same that would bring down just about any other start-up.
First and foremost, no matter how innovative it is on paper, a product needs an active target demographic to survive. All investors can usually do is throw a handful of cash at their favorite project and hope that it will stick. It is then up to the people in charge to make sure that the coins find a place in the market and that businesses actually acquire and use them for their day-to-day operations.
Popularity isn’t the only factor in deciding whether an ICO will be successful. These fundraisers aim to contribute towards the final objective. Still, especially for smaller currencies, they rarely manage to collect all of the cash needed to get the job done. Failure to secure additional funding is a death sentence for any business, regardless of whether it has a brick-and-mortar office.
The aforementioned world of cryptofinance is still too small and overpopulated for everyone to happily live in peace. Larger and more popular coins, such as, Bitcoin, Ethereum, Litecoin, DogeCoin, and more, end up drawing all of the attention while the others struggle to survive. Five years from their launch date, more than 50% of digital currencies have disappeared from the face of the Earth; only a forgotten husk of what they once were.
Study Your Prey Before You Attack
High failure rates and nightmarish stories shouldn’t discourage you from participating in an Initial Coin Offering. As we already mentioned, there’s plenty to gain from this kind of investment in the long run. To maximize your chances of success and avoid wasting your own money, there are two fundamental steps that you’ll likely want to follow.
- Evaluate What You’re About To Buy: just like you’d do at the shop;
- Investigate all of The People Working on It: learn a bit about them;
For all intents and purposes, ICOs are early-stage fundraisers. The company or team behind them can provide little warranties that the actual product will work as intended. Most of the time, they won’t even be sure whether their gamble is going to pay off.
Their risks are indubitably high, but you too should consider what you’re about to do. Before you finalize your transaction, spend plenty of time analyzing what the project has to offer. Check how far into development the group has gotten, read about the currency from independent sources, and try to understand what its scope and capabilities actually are.
Does their coin or token actually solve a “real world” problem? Does it have cases of actually being used in the real world or is it mostly hype? Are there updates on the coin/product?
A solid project is only as sturdy as the individuals behind it. While the identity of the human being behind Bitcoin remains a mystery, many new crypto-entrepreneurs prefer to publicly state the founders and names of the team members. Also, see if you can find out if there are any reputable investors, venture capital funds, or smart money involved.
Such a choice boosts their fame, but also potentially leaves them exposed to probing if they are just scamming. Invest some of your time and learn everything you can about the individuals who contributed to each project. Doing so costs you nothing and could save you much more than just an unpleasant surprise!