ICO or “Initial Coin Offering” is shaping up to be one of the best ways to invest in cryptocurrency.
While it does drawn some similarities from its counterpart the “IPO”, Initial Coin offerings are an entirely different beast.
At its core, an ICO is a form of crowdfunding on steroids, not entirely dissimilar to platforms such as kick starter or even Indiegogo. ICOs, Crowd Sales, or Token Sales as they are called is an event where a team of blockchain developers raises capital by releasing their own token in exchange for cryptocurrencies with a liquid value. These tokens can then be used among other things to exchange for cryptocurrency, stake in the company or project, or spent on the project itself in the form of products or memberships.
Ethereum, Smart Contracts
Some users of Ethereum are seeing ICOs in a negative light. With thousands rushing to invest Ethereum's already crowded network is becoming more and more congested. While ICOs are not only based on Ethereum, it is the most popular platform, giving projects the most exposure. This is due, in part, to its use of “Smart Contracts”. The contracts, which are essentially protocols that activate when certain parameters are met, serve to cut out middlemen saving both time and conflict. A fun way to think about smart contracts is to compare it to a vending machine. Where you would normally have to find lawyer or notary, hire them, then wait for the contract, you simply put your money into the machine or Ethereum's ledger, and it dispenses directly into your account. The rules, penalties, and fees are all outlined that same way as a traditional contract, however, the smart contract automatically enforces them.
Get Rich Quick?
With Bancors ICO raising 153 million dollars in 3 hours and stores successful campaign raising 2.4 million dollars it's hard not to see the dollar signs flying through the air. But, just like any investment, you'll want to buy low and sell high.
The majority of investors seem to sell off their tokens as soon as they can to capitalize on the initial spike after the ICO, which may seem like a great way to make money, and quick. More conservative investors might hold onto their tokens as the company grows in value, giving them more in the long run. However, tokens aren't with risk.
What's the risk?
ICO is inherently risky. They aren't regulated, and the only set of rules are those outlined in the smart contracts. Does this mean you shouldn't invest? No, just like any other investment you should do your homework to ensure that the company or service you are investing in is viable and will grow in value. The world of ICOs is still in the wild west phase. Back in July, start-up Coindesk was hacked during their ICO. Hackers were able to hack into the website and change the address the money was being sent to. Coindesk halted the sale and were able to recover 6 million dollars but the hackers still made off with over 7 million. This is oddly reminiscent of the DAO hack which was the catalyst for the hard fork in Etherum back in 2016.