You may have heard about ICOs but are not sure about their benefits and risks. If so, this post is just for you. It covers some of the most important facts regarding ICOs.
ICO – An Introduction
The first initial coin offering (ICO) ever was held in 2013. Since then, it has become a buzzword in the world of cryptocurrencies for both good and bad reasons.
Blockchain startups offer their tokens to investors in exchange for well-established cryptocurrencies, such as Bitcoin, to raise capital for their new project or technology.
Because these tokens are offered at a cheap rate, investors have a chance to earn a great return on investment if the project turns out successful. And as ICOs are open to all, everyone has an equal opportunity, at least theoretically speaking, to strike it rich by investing in them.
According to BTXchange, these are the two main positive reasons why ICOs are so popular.
But the road to riches is fraught with risks and scams
Unfortunately, ICOs are risky for two main reasons. First of all, it is a type of speculative investment. You invest because you think the company will develop and become successful. However, things don’t always go as planned. If the project fails, you’ll lose your money, all of it.
But this is not the main reason why ICOs are unpopular. After all, you know beforehand that you risk losing your investment when you decide to participate in one.
What gives ICOs a bad name are the scams that have happened a lot in the past. Unscrupulous people lure investors to purchase their tokens by promising tremendous and usually unrealistic returns.
For instance, the PlexCoin scam, one of the largest ICO scams reported till date, came to light after someone complained to the US Securities and Exchange Commission that it was promising an unrealistically high return-on-investment (1,354%) to American and Canadian investors. As a result of the complaint, in 2017, the authorities froze all the money ($15 million) raised by this bogus company.
So basically, you can lose money by investing in fake schemes, unlike traditional speculative investments, like IPOs, which are more heavily regulated.
Does that Mean One Shouldn’t Invest In ICOs?
Investing in any speculative investment is a personal decision. Agreed, the risks are greater in case of ICOs, but then so are the rewards. If you do decide to purchase tokens through an ICO, remember the age-old advice “If it sounds too good to be true, it probably is.”
To find out more facts about ICOs, have a look at this educational and fun infographic.