As Bitcoin and other cryptocurrencies grow, more altcoins are popping up like weeds. New altcoins have developed a particular strategy to explode onto the scene: The ICO. What are ICOs? Should you invest in one? And how has China shaken up the game?
What is an ICO?
An ICO, or Initial Coin Offering, is just like an IPO for stocks. In an IPO, you issue a certain quantity of stock at an opening price, which provides investment money for the business. Like an IPO, an ICO allows investors to grab a piece of a project. The funding that comes in can be used to develop a business or invent a product.
In a way, the term “coin” is misused here. What people are selling you are tokens, which are basically stocks in the company. These tokens are traded on cryptocurrency platforms such as Ethereum or Waves. So you can buy a new company’s token with Ethereum, hope it rises in value, and make a killing. Or at least that’s the idea.
ICOs are the Wild West of Altcoin
The problem with ICOs is that, right now at least, they’re unregulated and completely lawless. You can find a whole lot of garbage ICOs. Just look at https://www.coinschedule.com/ to see some of the latest offerings. Among these are obvious jokes, like the F**k Trump coin. But there are plenty of questionable startups that might not be legitimate.
The whole scenario resembles the crowdfunding revolution of a few years ago. Some of the offers were legit. Some were scams. Some had good intentions and couldn’t reach their goal. Others overpromised and underdelivered.
Right now, we’re in the same hectic Wild West of altcoin.
China Bans all ICOs
In response to the chaotic whirlwind of ICOs, China killed them. They’ve put a ban on all ICOs in China, which severely limits their potential for growth. Most experts speculate that the ban is only going to be temporary. Once the government figures out a better way to regulate ICOs, they’ll be back online.
However, this ban had massive implications for the crypto market. Cryptocurrencies fell in trading by around 5-10%, although they’ve recovered since then. Ethereum, most notably, suffered as it’s the largest ICO platform available.
It also puts the ball in the US’s court. Silicon Valley is thriving with ICO opportunities. China’s positioned itself as the most dominant player in the cryptocurrency game, but this ban kicks the door open for more US startups to embrace Ethereum.
Invest wisely in ICOs
If you decide to get in on an ICO, make sure you do your due diligence. Read up on the startup and what it offers. Focus on business ideas and products that could have a major impact on the market. Insist on seeing proof of concept and a business plan. Too many ICOs right now are unprofessional money grabs with no promise of potential rewards. Invest wisely, and you’ll be glad you did.