For years, raising capital was the basic tool for entrepreneurs to finance their projects. In the digital world, a new figure has emerged, the ICOs, which are changing the way in which investors use their capital in the market for cryptocurrencies.
You have probably heard the acronym ICO but what do these acronyms mean? In the following lines we will deal with its meaning and its main characteristics since they are one of the new forms crowndfunding with cryptocurrencies that are revolutionizing the market.
What are ICO?
The ICO or initial offers of currencies are a hybrid between the well-known crowndfunding and capital collection models, only that this is applied in the cryptocurrency markets. It is a method developed by blockchain technology technicians to capitalize on their new projects.
In this case, the collection is made for the development of a new project linked to a new digital currency or token. For this, the value of said new token is established in relation to an existing token (call Etherium or Bitcoin). An initial investor could benefit from a project success assuming an increase in the value of the currency.
How to invest in an ICO
To invest in an ICO you must first know when it starts. You can find out about ICO’s offers through many media; from social networks, WhatsApp or Telegram groups, to advertising banners and any contact. Now, if what you want is a more organized platform, you will be happy to know that there are portals in which initial offers are announced, such as in the crypto-economy section of our ICOs section.
Once we have knowledge of the existence of an initial offer of currency, we have the option of investing in three different phases depending on the project:
– Presale or PreIco: It is the initial phase of the project, when it is being developed, in this phase you can acquire tokens at a price lower than the initial output of the ICO, they are made with the aim of covering the initial costs of the preparation of the draft. In this phase you can make purchases with a price that can be up to 40% lower than the exit price of the ICO.
– ICO, token sale or crowdsale: In this phase, the announcement has already been launched and the initial currency offer has started. Thus, we have the opportunity to acquire a certain amount of Tokens linked to the ICO project, generally paying with another cryptocurrency that is usually bitcoin or ethereum, this phase will determine what the initial capitalization of the project will be.
– Market: Once the ICO phase is over, these assets could be acquired through the various exchanges (exchanges) that add this project to their markets. Even on certain occasions, they could be purchased at a lower price than their ICO because of development difficulties or a lack of support from new investors.
As we have indicated in the previous point, the investor could benefit from a subsequent increase in the value of the token, if the project is successful. Obviously the earlier you make the investment, the better prices you will get.
What are the risks of investing in ICO’s?
The current risks of the investment in ICO’s go through the planning of the developers of the project. In general, these offers are launched when the project has just been defined and, like any new project, it has intrinsic risks of execution. Taking into account all the scams that are taking place these days, we should know the project and its developer’s well, in order to reduce the risks.
What is the position of the capital / risk funds against the ICOs?
Despite the risks mentioned above, there is a wave of Investors interested in ICOs, thanks to the dozens of success stories and the high profits of these projects.
Pantera Digital is the leading Bitcoin Company in the United States and bases its capital investment solely on blockchain technologies. Blockchain Capital is also dedicated to investing in ecosystems of this new technology. And we cannot forget about Fenbushi Venture Capital, a Chinese risk fund that is strongly committed to this investment model.
If it is so risky, why is there so much interest in investing in ICOs?
It is curious that after finding so many risks in the ICOs, there are great capitals investing in them. The truth is that despite the risks and possible failures that Blockchain applications could present, the real business of investing in a new cryptocurrency is the technology and the paradigm shift that these pose, eliminating the authority of centralized agencies and improving the distribution of wealth in the entire world.