ICOs: the currency of the future?
Cryptocurrency has been referred to as “the money of the future” by its many advocates. Its detractors say cryptocurrency is an unregulated, Wild West atmosphere where billions are created out of no value, and investors should be aware. While the term is familiar to most people these days, it is not that well understood outside of the cryptocurrency marketplace.
Even so, all the cryptocurrencies combined in November of 2017 equaled a valuation of $300 billion. That means the crypto market at that time had a greater financial valuation than the global banking conglomerate that is Bank of America.
That is more than just a little impressive for a financial market that the average person doesn’t know very much about. On the other hand, the term IPO is more commonplace. That stands for an initial public offering, which is a way a company can raise money by offering investors stock shares in that company. This initial offering bases the value of one stock unit at a particular price that is a discounted price of the per-share value of the company, in order to attract investors.
This is the way for an investor to own a part of a company, even if that ownership is an insignificant percent of the company. The company making an initial public offering tells prospects why they believe the investors can multiply the IPO investment in the future by buying stock in the company.
What is an ICO?
An ICO is an initial coin offering. Like an IPO, it is a fund-raising mechanism. Instead of offering stock units which allow an investor to control a small portion of the company, an ICO sells “crypto tokens.” The idea on the part of the investor is different than what is expected in the case of an IPO. Tokens are purchased during an ICO for the purchaser to be able to exchange those tokens for a product or service which will be launched in the future. The buyer may also purchase a token or tokens in the hopes that the tokens can be sold in the future to another interested party for a profit.
In this way, an ICO is very much like crowd share funding. You are paying for something now to lock in a much more favorable price than that product will have in the future.
Its important to note that unlike an Initial Public Offering (IPO), investing in an ICO won’t result in you having an ownership stake of the company you’re giving money to. You’re gambling that the currently unprofitable currency you pay for now will increase in worth later and make you money.
Who can start an ICO?
Right now cryptocurrency as a whole is kind of like the wild west; there’s gold in the hills and virtually no regulation. This means that if you’re really set on getting in on that new ICO that your friend Dave told you about, be sure to do your research first. While investing in an ICO can turn into a profitable investment, you do need to make sure that the people putting up the ICO are real and accountable.
The first question you should ask yourself is whether the product’s leads have an established and verifiable history with the blockchain. If there is nobody there that has relevant and verifiable experience then this is a major red flag that you should investigate further.
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