Investing in ICO campaigns
Over the last two years, ICOs have introduced the new way of financial investment, quite different to the one in the traditional global market, the model that proved to be very successful. Many people interested in investing in such a successful business model want to have the answer on “What is an ICO?” before getting involved. The initial coin offering, also known as ICO, is an unregulated means by which new digital currency projects are able to raise funds by selling brand new crypto coins on the market. This method is largely accepted among the startups because they wish to avoid the strictly regulated and complicated fundraising process that is usually required by banks and venture capitalists.
How do ICO campaigns work?
In ICO campaigns, there is a percentage of cryptocurrency which is sold to the investors who supported the project financially. In exchange, the investors get a legal tender or some other established cryptocurrencies. In the majority of cases, it is exchanged for Bitcoins (BTC) or other altcoins such as Ethereum (ETH). Before starting the campaign, startups have to create a plan which explains all the details about the project and which needs would be fulfilled once it’s completed. Another important thing is to determine precisely the amount of money needed for the project and the duration of the ICO campaign as well.
How to invest in an ICO?
Once the campaign is launched, all interested supporters who which to invest can buy some amount of the distributed tokens. This is quite similar to the shares of the companies which are sold to investors in an Initial Public Offering (IPO) transaction. If the funds raised by the ICO campaign do not meet the minimum requirements by startups, the money has to be returned to the investors, meaning that the campaign was unsuccessful. On the other hand, it’s important to know that ICOs have given some huge returns so far.
In the section below you can see some examples of the most successful ICO campaigns in 2016 and 2017.
Waves (raised 16 million USD)
Waves is a decentralized platform which uses custom digital coins in order to represent value. In the summer of 2016, Waves raised 29,634 BTC (US$16 million) in its ICO campaign for 85,000,000 coins. Waves’ main focus is on asset token issuance, transfer and trading on Blockchain. It is a platform made for decentralized crowdfunding, community management and encrypted messaging.
Gnosis (raised 12.5 million USD in 15 minutes)
Gnosis is known as a startup that built a platform for prediction markets on Ehtereum (ETH). In the spring of 2017, Gnosis raised 250,000 ETH (12.5 million USD) in just 15 minutes, which gave a value of US$300 million to the project. Gnosis also has its own digital currency called WIZ. During the ICO campaign, all backers of the project received a token called GNO. Investors had a choice to lock the GNO for a fixed period, receiving the WIZ tokens in exchange. At the end, Gnosis managed to sell 5% of its 10 million GNO tokens to investors, having a value of US$30 each.
Token Card (raised 12.7 million USD in 30 minutes)
Monolith Studio launched a Token Card in its ICO campaign, closing it after just 30 minutes because the goal was already exceeded. Token Card is actually a debit card which can be used at numerous payment terminals and ATMs around the world. Token Cardholders now can fund their own card with allowances from several compatible contract wallets, such as ERC20. In the first stage, customers can choose to fund their card with ETH or with five other cryptocurrencies. Their token, known as TKN, is funded by the fees from the Token Card network.
Golem (raised 8.6 million USD in 30 minutes)
Golem is known as a decentralized global market for computing power. In late 2016, Golem raised 820,000 ETH (around 8.6 million USD) in just a half of hour for its Golem Network Token. This is a Polish-based peer-to-peer network that offers application owners and other users to rent the resources of other users’ machines. They get paid in cryptocurrency in exchange.
ChronoBank (raised 5.4 million USD)
Chrono Bank started as a project whose aim was to transform the recruitment industry and human resources. In the beginning of 2017, ChronoBank raised 5.4 million USD in the ICO campaign. The plan was to build a blockchain recruitment platform with a goal of disrupting the industry through the active use of digital currencies. The intention was to profit on their smart contract capabilities, which are all hosted on the Ehtereum’s blockchain. ChronoBank also offers Chrono Wallets NEM platform and Waves. ChronoBank’s Time token was recently added for trading by Lykke exchange.
Humaniq (raised 5.1 million USD)
Humaniq is a project whose goal to give financial services to all customers who wish to avoid the traditional banking system. In 2017, Humaniq raised 5.1 million USD in the ICO campaign, having around 12,000 projects supporters. The average contribution the campaign was around 430 USD. As the statistics show that there are around two billion unbanked people in the world who are limited or do not have the access to the digital market, Humaniq’s goal was to educate and include them in this system, providing them help to become the part of the digital market. The intention was to offer a peer-to-peer platform that leverages Ethereum blockchain.
The reason for ICO success
The right timing is one of the most important elements of a new ICO campaign. Sometimes it happens that a great and promising startup launch the ICO at the wrong time, which often leads to a disappointment.
In order to have success, startups need to make sure that there is a market, and then, to engage in the process of disrupting the industry. There were some quite successful cases, as it was mentioned above.
In the cryptocurrency investment world, the whitepaper plays a huge role. A whitepaper is a document that explains the concept of an ICO project. It means that without a proper whitepaper even the best strategies in the hungry market can fail.
Startups who offer people limited supplies usually do a good job, because they make potential investors act fast. That way, the ICO campaign can exceed the goal in just several minutes sometimes. It also affects the later demand for crypto tokens.
How to identify ICO scams
The success of ICO campaigns has also brought some less desired events into the cryptocurrency world. As there a new ICO campaign every day, the number of scams is rising as well, so it’s crucial to do a research in order to be able to see a difference between real ICOs and various scams.
When considering investing into a new ICO, it’s smart to check if there are team profiles on the page. A serious campaign always has open team profiles in order to show the future investor that it’s a trustful and professional group of people behind the project. If there’s a lack of social profiles of the team members, the chances of being scammed are higher.
One of the most important things is escrow status. If an escrow is missing or compromised, it’s a huge problem, so these campaigns should be largely avoided. For example, if an escrow releases 100% funds to team members after the campaign, it’s not a good escrow, because fund releasing usually goes around 20% after token distribution and around 40% after its beta is released.
As every ICO campaign has to provide the precise goal to its investors, if there’s a lack of operational or technical details in the whitepaper, it’s probably a scam. Good campaigns offer charts, specifications, and calculations to their future investors.
Another important thing in precise ICO plans is their goal. If the ICO campaign offers huge profits without the precise economic plan to its investors, it’s usually considered as an unrealistic goal. Before investing in such campaigns, it is wise to do a good research in order to determine if it’s worth participating. Anyway, it’s smarter to avoid this kind of ICO campaigns.