If you’re interested in finance, or tech, or business, there’s one acronym that you can’t help but have noticed in the last year or two: ICO. As time has progressed the topic has become more and more popular, and everyone seems to have an opinion.
Industry leaders say the ICO is ‘the next big thing’; many are predicting that the ICO is the future for all business startups; and for investors the potential for return is enormous – typically 1,320%. The problem is, like the vast majority of other people, you’re still scratching your head and asking, ‘what actually is an ICO? And what’s it got to do with cryptocurrency?’ Well, we’re here to tell you.
What’s the Big Deal About ICOs?
In a nutshell, it can be summed up in one alluring word: potential.
Whether you’re a Millennial looking to get a foot on the housing ladder, or a near-retiree, looking to make your pension pot go that little bit further, from an investment point of view, the right ICO has the potential to make your savings increase exponentially.
On the other side of the equation, ICOs also have the potential to help a company grow; whether from a hopeful idea into a fully functioning business, or from a fully functioning business into something extraordinary.
The initials, ICO, stand for initial coin offering, but that doesn’t really give much of a clue as to what the process involves or delivers. What it does indicate, however, is that the ‘coins’ in question are expected to be cryptocurrency – so Bitcoin, Ethereum, Litecoin, Zcash, Dash, or some other alternative. Working as a fundraising initiative for [largely digital] businesses, ICOs see investors buying tokens – a digital approximation to shares – from a company, which will then enable that company to develop as it sees fit, hopefully increasing its net worth, and therefore increasing the value of the tokens, which the investor can later sell on for a [potentially] enormous profit.
Like all investments, some ICOs fall by the wayside, but it’s the sheer magnitude of the – here’s that word again – potential ROI (return on investment) that has not only got people talking, but has got people investing. While a 1,320% return is completely staggering, especially when compared to the pitiful amounts currently on offer through traditional financial establishments, in the last year some ICOs have delivered their canny investors a huge amount more. The IOTA ICO, for example, saw investors gain a 60,000% return just 18 months after its launch, while Stratis went a smidge further, reaching an ROI high of 63,500% - just imagine if you’d put £1,000 into either of those: a house? I’ll buy two!
So, that’s the big deal; that’s why people just can’t leave the subject alone. Traditional economists are frightened of the ICO because it’s not within their standard remit. It’s as much of a technical and cultural phenomenon as it is a financial one, but it’s becoming more prevalent and important by the day.
How Do ICOs Work?
If a company needs funds, an ICO presents an alternative to traditional banking arrangements. Managed entirely in-house, without need to kowtow to a hierarchy of officialdom, or wade through the associated reams of red tape, ICOs see a company release either tokens, or less commonly, their own cryptocurrency, in return for a crypto investment, which they then use to fulfil the promises made in their white paper.
An ICO will generally only operate for a short period of time – from a few weeks to a few months –and only limited tokens will be made available. This not only affords the company a specific timeframe in which to raise their required capital, but also provides investors with a firm idea of when they can expect to see their investment get to work, and – perhaps most importantly – when they can hope to generate a return, as tokens can only be returned to the market once the ICO has closed.
How Can You Invest in ICOs?
Investing in an ICO is an incredibly simple process – and you can read all about it in this step-by-step guide. In short, however, you simply need to find a crypto exchange – there are hundreds, so do a little research to find the best for your needs, looking at fees, location, types of currency accepted etc., – open a secure crypto wallet, purchase your cryptocurrency, and find a secure physical location to store it. We shouldn’t need to spell it out, but cryptocurrencies are valuable, so just leaving your investment floating on your phone or laptop shouldn’t be an option. Instead, buy a quality USB and find a fire-proof, thief-proof place to keep it, this not only protects you in event of domestic disasters – fire, theft, orange juice being spilt on the laptop, phone plopping into the toilet – but also protects you against digital hacking and scams.
Once you’ve bought your currency, you then just need to choose an ICO (or two, three, four, or more) to put your funds into. If you’re not beginning your venture with a company in mind, crypto communities are the place to discover which ICOs are in the offing. Visit message boards, such as Reddit and Quora, or search community sites, such as CoinList. And that takes us nicely onto one of the most asked questions of the moment…
How to Spot the Best ICOs
Every ICO has the potential to deliver a terrific return, but as previously mentioned, some have more potential than others. To work out which is which, you need to read. Read the white paper, read the markets, and read between the lines.
What you’re looking for is:
- A proposition with a strong business model
- A product with a ready-made market
- A team who knows what they're doing – and have the experience to demonstrate this
- And, if at all possible, a business that is already in operation, rather than a startup. Why? Because then you’re putting your money into something rather than some thought.
Once you’ve gone through all of that, you get down to the slightly trickier area of tokens. Even if an ICO looks like the safest bet in the world, there is no point putting your cash into it, if it’s not likely to render a later profit for you, so token structure is important. Look at how many units you will get for your money. During the FastInvest ICO this December-January, for example, tokens will be issued at a ratio of 1,000 FIT (FastInvest Token) for 1 ETH (Ethereum). 777 000 000 FIT will be generated, with 50% open to crowd sale purchase, so you can do a calculation fairly simply, to work out what percentage of the overall tokens your investment could gain you, and from there it’s possible to determine whether this offers the potential for a future return. Of course, this will also be influenced by whether you already own Ethereum, how much you paid for it at the time of purchase, or whether you’ll need to make that investment now too. If you purchased your Ethereum at the beginning of the year, 1,000 FIT would be akin to spending US$10 (£7.50), which is a bargain in anyone’s eyes.
How to Spot Scam ICOs
Unfortunately, not everyone online can be trusted, so before you invest your readies, it’s important to be aware that there are con artists out there. When doing your research, keep a weather-eye open for scammers.
The thing with scammers is that they rely on investors not looking too closely; just being dazzled by the science, so the best way to protect yourself is to read and read again.
Look out for:
- Vagueness. If a company relies completely on jargon, rather than working to help you understand what they do/are intending to do, it can mean that they don’t want you to know, and the main reason for that is because it’s dodgy.
- An A-Team. Where A stands for Anyone. If the team behind the project are unsearchable, made up from names that are oh-so-common that you'll have to trawl through a billion to find them, then they may well not exist. While it's acceptable to have one Tom Jones on the team, you don't expect to find them working with a John Smith, James Taylor, and Chris Williams.
- Enormous Promises. The scammer also relies on investor's greed, so they will generally lay down the tastiest bait they can imagine. Often, if you stop and think about the details, it can become painfully clear that these promises are totally unattainable.
So that, really, is all you need to know about the ICO. All you need to do next is to pick one.
So Many ICOs, So Little Time
With more and more ICOs coming onto the market every day, it can feel overwhelming. Picking your first investment option will be made easier if you research. As a final pointer, though, if you can find a going concern to put your money into, you will significantly cut your risk.
FastInvest has already made a strong name for itself as a P2P (peer to peer) lending platform. With a customer base of 8,500, it is unquestionably established, and the corporate information is there for anyone to see. The team have proven that they know what they’re doing, and the product has a demonstrable market. Unlike the majority of others, the FastInvest ICO is not to fund the start of a business, but to further the reach of the existing one – opening new offices (beginning with the first American branch), launching a P2P lending investment app, and releasing a cryptocurrency payment card. All of these plans will further the value of the proposition, and as such should be welcome to investors.