What is an ICO and how to minimize the risks

Initial coin offering (ICO) is when a company or startup sells a new cryptocurrency or token for the first time to the public to raise money. It is basically crowdfunding. The concept of ICO comes from IPO (initial public offering) which takes place in case of stock markets.
An initial public offering (IPO) on the other hand is the first time that the stock of a company is offered to the public to raise money.
Both sound similar but they are not exactly the same but still it gives you a general idea.

There is another term known as the ‘ICO pre sale’ or ‘pre sale’ which takes place before the main ICO.

The ICO price of a cryptocurrency / token is generally low but investing in ICO’s is also more risky, you are basically investing in a startup that has no finished product just the promise, so thorough research about the project must be done before investing in an ICO.

These days Ethereum (ETH) is the primary cryptocurrency which is being used to sell tokens during an Initial coin offering (ICO).

Few days or weeks after the completion of the ICO the token gets listed on the cryptocurrency exchanges where it can be traded ( bought and sold).
The price on the exchange could either go up or it could even go below the ICO price, it all depends on the demand, hype, news and other factors surrounding a particular project.

What is the advantage of investing in an ICO ?
Risk to reward ratio – Because the price is low during the ICO phase, you can buy more with less money and if the price of the cryptocurrency rises in the future you can get massive returns.

What are the cons ?
Market is driven by greed, new ICO’s keep springing up every day and it is difficult to tell if this particular project is going to deliver what they promise or whether this project would be a success or not, you could loose money very easily especially if you are new to cryptocurrency market.
There have been scam ICO’s which were just setup to take money. At the moment cryptocurrency market and community as a whole is new and not mature enough so its easy for someone to make a nice looking website, write down a few nice things and make you put your money on the table

I know the risks and I still want to invest in the ICO
* To minimize the risk you need to research.
* Check out the team which is involved in the ICO project. Look for possible red flags. Look at the development team whether they are qualified enough.
If the team members are unknown and you cannot verify if the info is true, they don’t have any linkedin or other profiles then that is a red flag.
* If you find any one in the team that is renowned or powerful, (for eg, someone who works in the government or is CEO, ex-CEO, VP of some renowned company, or it is Vitalik Buterin himself in the team of advisors) then that is a positive sign but this alone is not enough.
* Think about what problem this project is going to solve, what is its use, what industry could it possibly disrupt and what are its current competitors.
* Read the project’s white paper.
*Determine if the project really needs blockchain ? Many companies just want to join the blockchain bandwagon.
* See what people are saying about the project or ICO on reddit, facebook and others forums.
* Ask questions on the project’s reddit, telegram or facebook and see if they are able to answer your questions.
* See the hard cap of the ICO, hard cap means what is the maximum amount of money that the project aims to raise, if the amount of money is ridiculously high then that is a red flag. There was a fraud ICO named Tezos which raised $232 million (too high).  The money raised during an ICO is meant for the development of the project and not to fill anybody’s pocket. There are many kinds of costs involved for example – hiring new people, buying things necessary for the project, marketing cost etc..
* Don’t get burned during the dump. The ICO’s which have a lot of hype around it, when it hits the exchanges its price rises and when it does the initial investors who bought it during the ICO phase tend to dump or sell their holdings in order to make profit. Now whether you want to sell it early or you want to hold it for the long term is entirely up to you.
* Put the amount of money that you can afford to loose.

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