‘ICO’ stands for ‘Initial Coin Offering’ and is a crowdfunding method for crypto start-ups. It allows a company with an idea for a cryptocurrency to share their idea with the public. However, money will first be needed before the project can actually be developed. By holding an ICO, the start-up can raise money for the development of their idea.
People who invest money in the project early will receive a reward in the form of tokens. These tokens serve as proof of participation in the ICO. Later, these tokens can be exchanged for the cryptocurrency, when it is available. In general, people who invest in a project through an ICO end up with relatively more crypto than people who get in at the launch.
An ICO is thus comparable to a traditional IPO (Initial Public Offering). In the stock market, start-ups have been making use of similar crowdfunding methods for years, in order to raise money that they can put towards the development of their business and product.
How to participate in an ICO?
Anyone can participate in an ICO. Some preliminary research will have to be done first. Finding a suitable project is one of the steps in the preliminary research.
There are several websites where companies and teams can announce their ICO. These websites serve as a kind of advertising space for the ICO. They want as many people as possible to participate in the ICO. It is therefore advisable not to stick to these websites alone, but to also search the internet for other information about the project. Consider, googling the team members, for example. Try to find information about them online. For example, what have they done in the past? The most important thing is to base your choice on your own research.
To buy the tokens of an ICO, it is necessary to have a wallet that supports the token. For example, an Ethereum wallet is required if the tokens run on Ethereum. This is often clearly stated at the ICO. Next, cryptocurrency will have to be sent to the wallet address of the ICO, after which the company behind the ICO will send the tokens in return.
Fraudulent ICOs and scams
Unfortunately, investing in ICOs is very risky and many fraudulent ICOs and scams take place. There are many known cases of people who sent money to a wallet address because they thought they were participating in an ICO, after which they did not receive any tokens in return. Soon after, the project and the company behind the ICO seemed to have disappeared from the face of the earth.
The reason that many ICOs are a scam is because it is very easy to set up an ICO, without having to reveal one’s own identity. Someone with malicious intentions only needs to come up with an idea and set up an anonymous wallet and then post it on a number of ICO websites. It is then a matter of waiting until people fall for the scam, after which the criminal is no longer heard from. Because anonymous wallets are used, it is virtually impossible to trace the perpetrators afterwards.
How to recognise a fraudulent ICO or scams?
Fortunately, there are several ways to spot a fraudulent ICO or scam. It is important to be aware that there is always a possibility that an ICO is fraudulent or a scam, even if the methods below have been used to limit the risk.
- Learn more about the people behind an ICO. One of the most important steps is to research the people behind an ICO. For example, look at who is on the team, and then research these people on the internet. If nothing can be found about the team members, this is often a red flag.
- Read the white paper carefully. The white paper should include the background, objectives, strategy, possible problems, roadmap, implementation and the further course of the project. Check if an ICO has a white paper, and read it carefully. Be critical of what is written, but also watch out for spelling and grammar mistakes.
- Keep an eye on token sales. The team behind an ICO will always publicise their token sale progress. This way everyone can see how much money has already been raised. If it is difficult to see how token sales are going, that is often a red flag.
- Check transparency. A team that has an ambitious project and is eager to go for it isn’t afraid to be transparent about how they are going to do so. They are not afraid to share everything they know with the outside world. After all, what matters to them is the success of the project. If an ICO does not want to share anything with the public, such as information about the technology and strategies they will use, this is usually a red flag.
- Only invest money that you can afford to lose. Despite thorough research, it can still happen that an ICO turns out to be a scam. Therefore, never invest money that you cannot afford to lose, to avoid worse.
What ICO scams are there?
Every ICO scam can look different. Almost all fall within the category of a so-called ‘exit scam’. This means that the team behind the ICO disappears into thin air and nothing more can be found about the ICO. Often, the names of people on the team could not be found during the ICO.
In some cases, criminals do give names of people behind the ICO. These are often names and photos of people who have nothing to do with the ICO. It is therefore important to look beyond just the name and the photo. It is also possible to run an image search in the various search engines. In this way it is possible to check whether a photo of another person has just been taken from the internet somewhere to be misused for the ICO.
Summary
An ICO (Initial Coin Offering) is a method of crowdfunding that allows companies to raise money for the development of their crypto project. After the idea of a crypto project is conceived, it takes a lot of people to help develop it. That costs a lot of money and that money has to come from somewhere. In many cases, the creators themselves invest their own money in the project, although that is usually not enough.
It is possible to participate in an ICO yourself, thereby helping to develop new cryptocurrencies and blockchains. As a reward, tokens will be issued, which can later be exchanged for the cryptocurrency of the project. By getting in early, investors in an ICO often receive cryptocurrencies at a very favourable price. Therefore, it is possible to make a lot of money by participating in an ICO.
Unfortunately, this is not without danger. There are namely great risks involved in participating in an ICO. In the past, many people have been cheated out of their money by an ICO. After they invested money in the project, the project disappeared without a trace, as did the so-called ‘inventors’ behind the project. Fortunately, there are plenty of ways to avoid falling victim to an ICO scam yourself, although it is important to always remember that you may lose all your money.