Top 10 Questions about ICOs
1. What is an ICO?
ICOs (initial coin offerings) are an increasingly popular crowdfunding method for startups with the use of cryptocurrencies. It usually involves a startup or foundation that offers investors a self generated new token or coin in exchange for another cryptocurrency such as Bitcoin, Ether or other.
2. Are ICOs legal?
It depends. Most countries have yet to issue regulations regarding ICOs. Countries like China have already banned ICOs, while others like Switzerland or Gibraltar are working on regulatory frameworks to allow startups to legally do an ICO.
3. What are some successful ICOs?
In terms of dollars raised, some of the most successful ICO’s have been Filecoin ($257 million), Tezos ($232 million) and EOS ($185 million).
4. How do I invest in an ICO?
To invest in an ICO you will need to own some cryptocurrency, mostly Ether or Bitcoin. Some ICOs require KYC and ALM measures prior to investing. Once the contribution period starts, investors send cryptocurrency to a wallet address specified by the ICO founders and will receive a new token in return after the ICO is completed. Some ICO have different rules, so make sure to check each individual project conditions in detail.
5. How much money does a projects raise through an ICO?
Most ICOs raise more than $1 million and some have raised more than $100 million (although those projects represent a tiny minority). Many ICOs have been criticized for raising a lot more money than it would be needed to build their product, so before you decide to invest, make sure you know if the founders use a cap to limit the amount of money they are raising and if that cap is reasonable.
6. Who are the members behind an ICO?
Before investing in an ICO, it’s very important to check who the founders are. Are they qualified to start a project like that? Do they have a background that’s compatible with the goals the try to achieve. Not all ICOs are good investments and some are even outright scams, so make sure to check the people behind the project every single time before investing.
7. How can I evaluate the performance of an ICO?
There are several ways to see if an ICO is performing well. Many people are interested in the price of the tokens, but it’s important to evaluate other criteria as well because many have a much higher impact long term. Check if the team regularly ships new code, if they are transparent and are working productively on the product. Check if the community behind the ICO is growing and if the case that the product has already launched, check if it is being actively used by users.
8. Why are advisors important for an ICO?
Advisors can help projects avoid mistakes and help the founders in difficult times. A project with good advisors will have a greater chance of succeeding in the long term. At the same time, it can be a positive signal for investors that want to participate in an ICO, if people with a good reputation in this field have decided to join a project as advisors.
9. What are risks of investing in an ICO?
ICO’s have a very high risk profile. Be prepared to lose all your money if you invest in ICO’s. As a rule of thumb, about 90% of startups that raise money via venture capital end up failing and this rule will likely hold for ICOs as well.
10. What types of ICOs are there?
In the past most ICO’s were created for launching a new cryptocurrency (Ethereum itself was started as an ICO), but lately projects in many more areas have launched an ICO’s, from hedge funds to video games, real estate tokens, travel apps, energy companies and many more. Even some large S&P 500 companies have decided to launch their own cryptocurrency or tokens.