A new coin can be launched via a sale to investors during
its launch period, but is that process safe or could it be a scam?
If you want to know the answer to that you’ll need to know the
answers to questions such as:
- What is
an ICO? - What
is the difference between an ICO and an IPO? - What are
the risks of an ICO? - Where
does my money go in an ICO?
So, let’s go back to basics and understand just how safe Initial
Coin Offerings really are.
What is an ICO?
When comparing it with traditional finance, an initial coin
offering will work much like an initial public offering.
In an initial public offering, a company sells some of
their shares as means of getting money which will then go towards funding new
projects or whatever else they might need capital for.
As for an initial coin offering, developers who are about
to launch a coin or token will do an offering and sell some of their tokens for
a set price. By doing so, they raise capital and start getting their coins or
tokens out there.
As you would expect there are, however, some differences
between ICOs and IPOs.
What are the differences between an ICO and an
IPO?
By buying a stock from a company which is undergoing an
IPO, you gain a certain amount of power within that company.
This means that by doing so, you will own a fraction of
that company which in turn means that you can cast your vote if you hold enough
shares.
As such, if you are committed towards investing in a
company’s Initial Public Offering, you have certainly performed a lot of
research on the company, its ideas, projects, positioning, the industry in
which it operates, its short-, mid- and long-term plans, etc.
When it comes to an Initial Coin Offering, however,
sometimes investors will put their money down without even seeing a finished
product.
Consequently, the risk is greatly increased.
What are the risks of an ICO?
A major difference between an ICO and an IPO is that while
an IPO is heavily regulated by the Government or other entities such as the
SEC, an Initial Coin Offering isn’t regulated by anyone.
This in turn makes it so that pretty much anyone can create
their own ICO.
This clear lack of regulation, to put it simple, means that
there is nothing stopping the project to get your money and run off with it, a
scam known in the…
