Remember how an Initial Public Offering (IPO) is a company's way of becoming publicly traded? An Initial Coin Offering (ICO) is the Cryptocurrency version of an IPO. However, unlike the IPO, where restrictions are well defined, and only certain companies can file for it, there are very few regulations of ICOs. In the US currently, anyone that has access to the right technology is free to launch a new cryptocurrency. So is it safe to invest in this market? Can you launch your own crypto? That's what we're here to find out.
Like an IPO, an ICO is a way of raising funds. Companies and individuals can launch an ICO for a particular project, usually crypto-related, and investors can buy the new coin if they support it and think it will increase in value. The coins issued can represent ownership or just have some kind of utility within the project.
An important document to understand in an ICO offering is its whitepaper, which details what the project is about, how much money it needs, how it will spend the money etc. However, just because the project is promising doesn't mean it will always turn out well.
The lack of regulation means that scams are rampant and easy to set up. Although some ICOs are legitimate and have generated massive returns, countless others have turned out to be fraudulent or have performed extremely poorly.
A common tactic for scammers is doing whatever it takes to make you believe in their project, sometimes taking months to develop a good reputation, only to abandon the project and run away with investors' funds. If you're really set on buying into a new ICO, make sure that you familiarize yourself with the cryptocurrency space, understand the project and its goals, trust the people behind it, review the legal terms, and acknowledge that it may end up being worthless.
What if you want to launch your own ICO? Even if anyone can establish and launch an ICO, that doesn't mean that you should. The first thing that you need to realize is that the ICO climate has changed. Many countries are starting to ban and regulate the space. Investors are becoming more informed, and its popularity has likely peaked. Upwards of 90% of ICOs fail to reach their goals, and it has become increasingly difficult to set up. Unless your project or business would substantially benefit from an ICO, it probably won't be worth it.