Initial Coin Offerings (ICOs) have received a lot of press but not always for the best reasons. Experts estimate that over 80% of ICOs have fraudulent intentions. Unfortunately many people tend to associate any company that works in the crypto space with ICOs, and this may have a negative effect on the entire industry. So, it helps to understand a little about how ICOs work and how to assess them.
How ICOs are structured
ICOs are similar to IPOs, or Initial Public Offerings, which most people in the investing world are familiar with. Instead of companies selling shares to raise funds, ICOs are start-ups that accept cryptocurrencies in exchange for their tokens. These tokens work a bit like shares, in that investors buy them hoping that their prices will rise and result in future profits. Essentially, it’s a kind of crowdfunding. It is important to note that a token is different from a coin; digital coins need a blockchain protocol to support them, tokens do not.
The ICO kicks off when a start-up has an idea for a blockchain-related enterprise. They reveal the idea to their community, and if they get the right kind of feedback, they’ll draft a whitepaper that contains all the details investors might require. This is like a business plan – and it will usually include details like the team working on the project, its technical aspects and revenue projections.
The team will also decide how many tokens will be available for distribution, what each token will cost and how they will be used. Then they advertise the upcoming ICO launch date, which is when the token sale will actually begin, but it doesn’t go on indefinitely – there’s usually a defined time period during which the start-up will raise their funds, or a specific target amount.
Once the ICO is closed, it’s up to the team to elect how they will deploy the investment raised. This is usually disclosed in the whitepaper, so that investors are clear on how and where their money is being used. The team can hold any currency in its original form, convert it all to fiat, to BTC or ETH, or whatever currency they’ve elected to use, and drawdown based on capital requirements.
How Wirex is different
Wirex runs on a completely different business model. We are simply a platform that allows you to buy, store, exchange and spend your digital and traditional currency seamlessly on one open platform. We’ve never held an ICO to raise funds; instead we’re funded by reputable financial organisations like Tokyo’s SBI Group. We have a four-year track record and serve 1.8 million customers in 130 countries.
Avoiding ICO scams
While some ICOs have raised impressive amounts of money and given their investors great returns, there are also plenty of highly-publicised situations where ICOs collapsed or never had an intention of delivering a legitimate product. So, it’s vital to do your homework if you’re considering investing in an ICO.
Here are some pointers to help you assess the viability of an ICO.
- Research the team – you want to be sure they have the required skills to see the project through.
- Read the Whitepaper – this is your best bet for making an informed decision. Make sure you understand exactly what the idea is, how the team plans to execute it, what the future scope of the project is, and how your token will serve you.
- Look for an active community – you can usually find them on platforms like Telegram, Slack and Reddit. Talk to the people there and check things out.
If you want a simple way to invest in and spend both traditional and cryptocurrency, Wirex offers a secure platform from which to transact. Unlike ICOs, Wirex is licenced by the UK Financial Conduct Authority (FCA). The FCA is known around the world as one of the strictest and most thorough regulators, and the granting of the licence means that clients can rest assured that Wirex adheres to the highest levels of diligence and integrity in its business operations.