Many are the doubts that surround when you hear about an ICO. Next, we will clarify questions such as: what is an ICO? how does it work? How to invest? What are the risks? and how to recognize a fraud?
What is an ICO?
I finish very used in the world of cryptography. It is short for CryptoTerm Initial Coin Offering (initial supply of coins ). It is a model used for projects and cryptography companies have a good start. However, you have to be very careful and be well informed before participating since some are scams and you can lose a lot of money.
How does an ICO work?
The main function of an ICO is to raise money to start a cryptography project or business. During the time it takes place, which at least usually lasts a week, users have the possibility to buy tokens for the new project in exchange for Ether or bitcoin. When making the purchase you will get the first coins of the project together with the other participants of the ICO.
The value of these coins can be determined in 3 different ways:
1. Supply of static tokens and prices.
If an ICO has a specific purpose or limit to be reached, if the set amount is reached, the ICO stops. This ensures that the price of the tokens you receive will maintain their price during the ICO.
2. Supply of static tokens and dynamic price
The number of coins is fixed and its value will depend on the amount that is collected. The more it is collected the more the value of the tokens will increase. The founders have the advantage that if the sale is very successful they can raise a huge amount of money.
3. Supply of dynamic tokens and static price
In this type of ICO the price of the tokens does not vary but the number of coins during the ICO does. The more money is collected, the more coins are created and therefore more coins can be purchased. An example could be that for each Ether obtained an extra token was created.
An example: the Ethereum ICO
It took place from July 20 to September 2, 2014. During these 42 days, you could participate in the initial offer of Ether coins. Of the 3 models explained in the previous section Ethereum used the last third, that is, the Ether coin supply was dynamic while the price was static. During that time slot, with a value of between 30 and 40 cents per Ether, the people who participated in it obtained a total of 1137 Ether in exchange for bitcoins. With this, the Ethereum team managed to raise the huge amount of 18.5 million dollars. Unfortunately, a large amount of money was kept in bitcoins, which at that time was falling a lot, with which a large amount of money was lost.
How to participate in an ICO?
Each ICO has its rules and operation. It is important to plan everything. Participating in an ICO can be complicated, especially if it is our first time. It is important to always remain calm and self-controlled so as not to take irresponsible risks.
- You must make sure that your Ether is ready on your wallet. In addition there will be transaction costs.
- Always read the instructions of the ICO sale. They usually publish how to participate in the ICO a few days before its start. Reports to avoid surprises.
- Make sure you have all the information at your disposal to join. In this blog I found a template to complete with information that can help you decide whether to participate or not.
- Name of ICO
- ICO Management
- Start date and time
- First block number
- Information that you consider important
- Your offer
- Link to instructions
- Login from your wallet
Irritations of an ICO
They are not under regulation, scams are always possible. The main reason why we pay a lot of attention, mainly if we think to invest a lot of money in it. It is very simple for scammers to set up a website and think about the names of the team behind the project. Even though false accounts encourage people to invest in them through forums. Once they get a good sum of money they disappear mysteriously and everyone who invested loses their money.
Points to pay attention to in an ICO.
The team behind the ICO must be transparent. If you can not find the founders and developers of the project, start by stepping back. But if it finds them, it does not give us full certainty that it is not a scam.
Here are 5 essential points that an ICO must meet to be seen as safe. We can find a safe ICO that does not comply with any of the points, but it would be an exception.
- Is the team behind the cryptographic currency transparent? Is the founder known? Who are the developers?
- Have you published a technical document online? What is the current plan? Is it feasible and realistic?
- Is money handled safely? For example, will smart contracts or an ICO-coin guarantee deposit wallet be made?
- Does the team answer your questions? Do they keep the community constantly informed?
- Can you safely store the tokens you receive during the ICO? Is there a wallet already and does it work well?
Losing a little time analyzing how ICO invest, in addition to getting rid of a possible scam, can give us much more confidence and more profit for the money invested.