There’s a lot of buzz around ICO, but many are still unfamiliar with it and the benefits it could bring.
Are you one of them? If yes, you will find this post and the infographic below from BTXchange helpful as they provide answers to some of the most frequently asked questions about ICOs.
What Is An ICO?
The term ‘ICO’ stands for ‘initial coin offering.’ Launched in 2013, ICOs are used by startups to fund a new project or technology. Funders offer new crypto-token to investors in exchange for well-established cryptocurrencies such as Ethereum or Bitcoin.
How Can Investors Earn Money Through ICOs?
Funders offer pre-ordered tokens or ICOs at cheap rates. If the project does well, the demand for these new tokens will increase, and so will their value. Consequently, initial investors will be able to earn a handsome return on their investment.
In a way, ICOs work pretty much like IPOs or initial public offerings. Most companies offer IPOs at affordable rates, and if the company consistently puts in a good performance, the investors make a lot of money.
So, Does That Mean ICOs Are The Same As IPOs?
No, that’s not the case. While ICOs and IPOs are similar in some aspects, they are vastly different.
There are two main similarities between the two. Firstly, their main purpose is the same — to raise money. Secondly, just like IPOs, ICOs too are a speculative investment. You can earn a lot of money on both, but you can also lose much or all of your investment if things don’t go your way.
Now, let’s look at the main differences.
IPOs are offered by established companies to raise capital. On the other hand, ICOs are offered to raise money for a new project or technology that only exists on paper.
IPOs aren’t open to everyone, but ICOs are. For instance, it is considerably difficult for non-US Investors to buy American IPO stocks. ICOs, however, surpass geographical limitations and almost anyone, irrespective of her location, can invest in them. The reason we said almost anyone and not everyone is because two countries, China and South Korea, have banned ICOs.
IPOs are heavily regulated while ICOs are not.
In the U.S., the first IPO was offered in 1783. On the other hand, ICOs are just about five years old.
What Kind Of Track Record ICOs Have?
There have been quite a few ICO scams since its launch in 2013. For example, one startup raised $2.4M in a fake ICO in February 2018.
A similar fraud had occurred in 2017, in which scammers created a lot of hype around a blockchain token system through some great marketing. However, soon someone noticed that the members had used faked photos, but by then the team had already duped thousands of investors and raised capital of $2.7M – $4M.
Notorious as these two scams are, they pale miserably in front of one of the biggest ICO scams reported till date — the PlexCoin scam. After receiving complaints that the PlexCoin ICO was duping American and Canadian investors by promising an unrealistically high return of 1,354%, the US Securities and Exchange Commission froze all the money that the ICO had raised (15M in total) in 2017