If you want a shot at making fantastic gains, there’s a form of investing that you should consider if you haven’t already.
An initial coin offering, or an ICO, differs from investing in an initial public offering (IPO) in a few major ways.
For one thing, you probably can’t get insider stock with an IPO. But with ICO, you are absolutely an insider. With an ICO, it doesn’t matter what the “project” you’re investing in does, makes, or sells. It’s not a company, and it doesn’t exist in any traditional entity form.
And when it comes to the value of the new-fangled cryptocurrency coins or “tokens” you get for your investment, their value can rise exponentially.
How ICOs Explode
An ICO is like an IPO in one way: It’s a means to raise money to fund a new venture.
However, while IPOs are highly regulated and deal with investors, ICOs are unregulated and deal with supporters or contributors.
ICOs are more like a crowdfunding event. But they differ from crowdfunding in that the backers of crowdfunded companies are motivated by a prospective return on their investments, while the funds going into an ICO are basically donations.
That’s why ICOs are often referred to as “crowdsales.”
Projects can be almost anything, but most of them are technology platforms that have something to do with blockchain, distributed ledgers, and decentralized organizations.
If someone’s got a hot project that they want to raise money for, and they “crowdsell” it through an ICO, contributors who throw in get a newly created cryptocurrency as opposed to stock.
They pay for the new cryptocurrency with an established cryptocurrency like Bitcoin or Ether.
They don’t usually get any equity ownership in the project, though that’s possible. They may have use of what the project does, and sometimes for a cost which might have to be paid for in another cryptocurrency the project issues to contributors (for a fee). Or they get nothing but the coins or tokens issued through the ICO.
As an aside: cryptocurrencies are digital. They are called coins or tokens, but nothing is minted as coins or tokens by project creators creating digital cryptocurrencies out of thin air. However, there are actual coins made by some people (think of the gold coins with a B looking dollar sign on them pictured alongside articles about bitcoin) that have digital addresses embedded in them that can be followed, that lead to a ledger, where there’s an amount of some cryptocurrency. But the physical coins and tokens of digital currencies are few and far between.
One of the reasons bitcoin and ether cryptocurrencies have exploded lately is that buyers of new cryptocurrencies issued via ICOs must pay for them with bitcoins or ether, most of the time. That increases demand for cryptos and, of course, their price.
That’s where the potential for explosive gains comes from.
The Odds Are Stacked Against You, But the Winnings Are Grand
While there are as many reasons to invest in ICOs as there are billions of dollars’ worth of ICO tokens in the world today, there are a few reasons not to invest in an ICO.
Some of them are frauds, most of them are pyramids, and none of them are regulated. They are speculative and dangerously volatile; you could lose everything, in lots of different ways.
The new cryptos get bid up because people see bitcoin and ether being bid up and want to buy into some new cryptos hoping they will become popular currencies and their value will increase. Maybe as they become currencies, other projects will accept them as payment for still newer cryptos.
Additionally, projects may have services or products that can be bought with its newly issued tokens, which themselves would have to be bought by anyone wanting to pay for its services.
That’s why a lot of this resembles a pyramid.
Because projects underlying ICO aren’t regulated or vetted in any way and are generally presented via a “white paper” explaining in maybe 30 or 40 pages what the project is about, it’s easy for unscrupulous players to perpetrate fraud by issuing tokens not tied to anything real.
And, because all of this is digital, there are probably too many unknown ways that blockchains, distributed ledgers, transactions, exchanges and anything digital can be hacked.
There’s definitely a future for blockchain. That technology is here to stay and will become a huge part of our future.
But ICOs are the Wild West right now and no place for just any old investor to be investing.
However, they are a speculator’s (or more accurately, a gambler’s) paradise.
So, if you want to make some real money, and don’t mind risking it all on most of the hands you’re dealt, take a seat and shuffle.