The 6 Things You Need To Know About ICOs
A key feature of this exciting new crypto world is the ICO (initial coin offering). Since January 2016, over 250 blockchain teams have completed ICOs, raising more than $1.5 billion combined. It’s becoming a hugely popular means of fundraising.
Eidoo undertook its first ICO this month and raised a significant $27.9 million, which was a huge validation for our vision to bring the world of cryptocurrencies to the masses. We also announced what’s called an “Airdrop”—a way for blockchain companies to reward long-term supporters of their projects with free tokens. We’ll be giving everyone who purchased EDO during our ICO 25% more if they hold on to their currency for a 6-month period. Suffice it to say investors were delighted.
This year, blockchain-based businesses raised more capital via ICOs than via traditional equity funding. But despite this phenomenal growth, there’s still quite a bit of mystery around what an ICO is exactly and how the shrewd investors can get involved.
Let’s review the facts:
1) What exactly is an ICO?
An ICO is essentially a fundraising method based on cryptocurrency. It can launch a new cryptocurrency or create tokens used to fund a new business. In return for an investment (typically in Bitcoin or Ether due to it’s liquid value), investors receive early ownership of the cryptocurrency or tokens.
2) Are ICOs regulated?
After The DAO hacking, the U.S. Securities and Exchange Commission (SEC) stepped in and ruled that under the Securities Act of 1933 (“Securities Act”) and the Securities Exchange Act of 1934 (“Exchange Act”), digital coins and tokens from ICOs are securities and therefore must be subject to federal securities laws. Beyond that though, there hasn’t been much guidance from the SEC; they’re still figuring out how to deal with them.
In contrast, on the other side of the world, the People’s Bank of China (PBoC) announced a blanket ban of ICOs in September, deeming it an illegal form of fundraising. The ban is likely only temporary, however, while the PBoC clarifies laws and distributes licenses.
Crossing over to Europe and Switzerland in particular, we have a rather refreshing picture. The Crypto Valley Association—a not-for-profit association supporting the development of blockchain and cryptographic-related technologies and businesses—has published a series of codes of conduct to foster good practice in the realm of ICOs and bring “clarity and confidence toward a new, rapidly-growing asset class.” It’s a key reason why Switzerland has become a safe haven for ICOs.
Overall, however, the global ICO market is outpacing policy and regulations. The majority of governments are still tussling over what to do. Last week, after banning Bitcoin, Russia went one one step further and launched the CryptoRuble.
3) Will future regulation be good for ICOs?
In short, yes. A tighter rein on ICOs should lead to a better quality of ICO, and a better quality would necessarily entail better—or more consumer-ready—products, stronger white papers, the acquisition of legal advice, a structured landscape, regulatory expectations and self-regulation. Get-rich-quick schemes will be a thing of the past, and the few remaining ICOs will be a lot more attractive.
4) How do I get started?
Research first. There are several useful websites that gather details of upcoming ICOs such as TokenMarket, ICO Countdown and ICO Tracker. From there, you’ll want to do plenty of digging around for information on the companies: read their white papers; consider what fundamentals make their tech great; examine who is on their team; determine if they have a product ready to go; and peruse social platforms and forums. Overall, gather as much information as possible before making the decision to depart with your crypto.
5) What red flags should I be on the lookout for?
- “Guaranteed” high-investment returns. There is no such thing as guaranteed high-investment returns. Be wary of anyone who promises that you will receive a high rate of return on your investment, with little or no risk.
- Unsolicited offers. An unsolicited sales pitch may be part of a fraudulent investment scheme. Exercise extreme caution if you receive an unsolicited communication—meaning you didn’t ask for it and don’t know the sender—about an investment opportunity.
- Sounds too good to be true. If the investment sounds too good to be true, it probably is. Remember that investments providing higher returns typically involve more risk.
- Pressure to buy right now. Fraudsters may try to create a false sense of urgency to get in on the investment. Take your time researching an investment opportunity before handing over your money.
- Unlicensed sellers. Many fraudulent investment schemes involve unlicensed individuals or unregistered firms. Check license and registration status on gov.
- No net-worth or income requirements. The federal securities laws require securities offerings to be registered with the SEC unless an exemption from registration applies. Many registration exemptions require that investors are accredited investors; some others have investment limits. Be highly suspicious of private (i.e., unregistered) investment opportunities that do not ask about your net worth or income, or whether investment limits apply.
6) I’ve found a great ICO and I want to invest; what next?
First, you’ll need some Bitcoin or Ether. That’s easy to pick up from an exchange such as Coinbase or Kraken. Once you’ve acquired your currency, you will need to transfer out the exchange to a private wallet like MyEtherWallet, Blockchain.info or Eidoo. Next, you’ll have to find out the address of the ICO and carefully transfer your coins; in return you’ll receive your tokens. If you’ve invested a lot of money, you might want to then move it into a hardware wallet (Ledger’s are popular).
If you’re using Eidoo, you’ll find ICO participation to be fairly easy, as the app includes an ICO engine that enables users to quickly locate the ICO they’d like to participate in and transfer out their coins with a simple click. The app can store all ERC20, ERC223 and tokens, and will soon be launching a hybrid exchange so users can also buy Ether or Bitcoin in-app. It will feature everything needed to participate in an ICO in one place.
Written by Thomas Bertani , Eidoo
Translated by PKCoin.co