What Is an ICO for Beginners: How to Know an ICO is a Scam or Not

What is an ICO?

If you have been following financial news in the last one year, then you know that cryptocurrencies have been generating hefty returns for investors. In the same breath, you may also have heard of ICOs and how they are creating wealth for both investors and entrepreneurs.  So what exactly is an ICO? It is simply an unregulated way of raising capital for companies. A company that wants to raise capital creates a token and sells it to investors in exchange for mainstream Crypto’s such as Bitcoin and Ethereum. If the company is successful, the token value increases, giving a return to investors. On its part, the company behind the ICO uses the capital raised to finance its projects, and create value. 

What’s the difference between an ICO and an IPO?

The primary difference between the two is that IPOs are regulated while ICOs are not. Unlike an IPO that requires government regulatory approval, anybody with an idea can come up with an ICO. The only danger to this is that many ICOs out there are scams.  There are numerous cases where people have invested in ICOs and lost their money to online scammers. 

How can one tell a good ICO from a scam?

To avoid falling victim to an ICO scam, there are a number of factors that you should consider before investing in one. These are as follows:
Read through its whitepaper: Before they launch, ICOs usually release a whitepaper detailing what exactly they are about. Before you put your money in an ICO, read through the whitepaper and feel convinced that the value proposition is worth it. If the whitepaper is all about how you will make money, don’t invest in it. That’s basically a sales pitch that doesn’t offer any clear roadmap as to how it will create value for investors.

Scrutinize the team behind the ICO: All ICOs have a founder team and an advisory team. Evaluate the professional skills of the founder team relative to the product they want to launch. If the team’s skills don’t match with the product they are offering, take that as a red flag. As for the advisory team, lookout for the inclusion of well-known entrepreneurs and other successful people on the list. That’s because, a well-known entrepreneur would not risk their reputation just to take part in a scam ICO. In short, before investing in an ICO, make sure the people behind it have something to lose if it goes wrong. 

So how does one invest in an ICO?

To invest in an ICO, you just need to check online for the latest ICO news. There is always an ICO being launched at one point or the other. Once you find one that you are convinced is a good buy, subscribe to its email updates, and wait for the launch date. Most ICOs accept Ethereum payments, so it’s best that you open an account with a relevant Ethereum wallet. My Ether Wallet is one of the most convenient and secure Ether wallets out there when it comes to ICOs.