IF YOU'RE INTERESTED IN ICOs YOU NEED TO KNOW THIS - 9/11/17
IF YOU'RE INTERESTED IN ICOs YOU NEED TO KNOW THIS - 9/11/17
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If you've been following cryptocurrency charts, markets, news, etc, then you know what an ICO is.
For the rest of you, an ICO is an Initial Coin Offering. It is a funding mechanism by which projects are funded by selling their underlying crypto tokens in exchange for Bitcoin or Ethereum.
I'll dive deeper into that in the advantage and disadvantages section, but to get to the point,
- There are few restrictions as to who can participate in an ICO.
- The pool of investors is global, which leads to astronomical amounts of funds raised.
- There is the possibility of you making A LOT of money.
ADVANTAGES
“ICO as a model has a number of huge advantages. For instance, through ICO we can democratize participation in the projects from the very beginning. This model is a perfect way to give everyone an opportunity to contribute to the development of the project from the very early stages. ” - Vitalik Buterin, founder of Ethereum
Source
The Grey Area
For your sanity and my own, the definition of "may", in the following context is, "expressing possibility."
According to the SEC (Securities and Exchanges Commision):
"As discussed in the Report, virtual coins or tokens may be securities and subject to the federal securities laws. The federal securities laws provide disclosure requirements and other important protections of which investors should be aware. In addition, the bulletin reminds investors of red flags of investment fraud, and that new technologies may be used to perpetrate investment schemes that may not comply with the federal securities laws," - Source
Securities Laws restrict most venture financing opportunities to accredited investors (net worth of $1mln or income of $200k for the past 2 years) and prohibit publicly marketing the project/offer to raise the demand.
Since there is no definite ruling (as of this writing) on ICO tokens being securities, this means that participation is open to the public (depending on the project).
Liquidity
There are ways that ICOs are better than traditional methods of equity financing. First, ICO tokens are way more liquid than (private company) stocks. Since the markets are run in real-time you'll be able to see the value of your token compared to BITCOIN/ETHEREUM whenever you want. Equity markets of private companies are more or less liquid, but the occurring transactions are large and slow.
Price
Many tokens can be bought at a low price. This could be good for speculators. Most exchanges will enable these tokens to be traded. If the project is successful the price will shoot up. There have been projects that have seen massive gains in a relatively short amount of time. However, I am against chasing instant gratification. Put in the work and do your research.
DISADVANTAGES
"We definitely need to work hard to improve this space. There are a lot of projects nowadays launching their ICOs, some of them are really brilliant and promising, some simply will not kick off, but there are also this kind of ICOs where people are trying to raise funds with one simple goal – to escape with these funds. Sometimes it’s really hard to see the scams among ICOs." - Vitalik Buterin, founder of Ethereum
Source
Scams
There are many projects that will simply not see the light of day. There are also projects that will simply take your money and you'll be left with a token that is completely worthless. This is why you do your research. Look at who is on the marketing team, development team, spearheading the project, and who is supporting the project. Also, look at their website, Github (to see contributions and how often the team members are pushing code). Compare the project to any competitors. How are the competitors doing? Do they have competitors? Does this project have a practical use case? What problem is the project solving? Does it solve it better than an existing technology? Will this even be here in 10 years? What is the long term goal for this project? Is their development timeline realistic.
I like to think of an ICO as a promise. Sometimes they're fulfilled. Sometimes they're not, but if you know the person promising, you generally know if you can trust them.
Taxes
Companies issuing ICOs could pay up to 40% in taxes on every dollar raised because money raised through token sales are treated as revenue.
THE DAMN GREY ZONE
Due to the uncertainties of whether or not tokens are securities, issuers may or may not even know if they're breaking the law.
It's also important to know that this isn't just an American thing. Other countries have their own versions of the SEC, and they can place their own regulations on tokens (within their jurisdiction). Remember that time China banned ICOs?
Your Private Key
Please don't lose your private key. Just don't.
Love
Loving a project is a disadvantage. You never want to get your emotions involved with investments. You will end up making irrational decisions, when you had the facts of a failing project right in front of you. An investment is exactly what it is, an investment. Sometimes, it's best to just walk away from things.
https://icodrops.com/
https://www.icoalert.com/
https://icostats.com/roi-since-ico
What do you guys think about this? Comment below
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Sources:
Token Sales, Competitive Advantages, Real Risk: https://cointelegraph.com/news/hedging-your-bets-new-diversification-models-for-crypto-investors
SEC Rules ICOs May Be Securities: http://fortune.com/2017/07/25/sec-says-digital-tokens-are-securities-warns-of-fraud/
Exclusive Interview With Vitalik Buterin: https://cointelegraph.com/news/exclusive-interview-with-vitalik-buterin-ethereum-bitcoin-ico-more
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Very informative. Resteemed
Thank you so much @chelsea88! Stay tuned for more!
Way more down side then upside which is why many countries are not allowing for it anymore. Im glad to see it as these ICOs where starting to become a major drain in the crypto space.
Drain? How so? @bitcoinflood
Hello @brokecollegegrad, I included your article in my curating post Look What I Found. You can take a look at it here: https://steemit.com/curating/@stortebeker/more-posts-on-look-what-i-found I hope you like it.