The cryptocurrency space is always full of new coins looking to stake their claim in the ever-shifting digital economy. In order to do that, an important part of the process is undergoing an ICO or Initial Coin Offering.
So What is an ICO?
When the creators of a coin decide to first introduce it to the wider world, they start an ICO- an initial coin offering. During an ICO, the creators sell the coin to the public at whatever price they choose, and the public begins to trade it as well.
Normally, ICOs happen before the development of the coin is finished. This means the coin can be bought and sold, but other features might still be in development. If those features prove to be underwhelming or unfeasible, that could be catastrophic for investors.
ICOs have often been compared to crowdfunding campaigns or pre-order video game sales, integrating aspects of both. The money raised from an ICO is usually invested back into the development studio, which in turn can develop more features and help the project reach its potential. In turn, the development team keeps developing new features to release to the public later.
Why Release a Coin Early?
Normally, coins are released before development finishes to build hype for the final product, but there are several other possible reasons. Some unreleased features might need the coin to have a robust economy in order to function well.
A good example of this is bitcoin mining, which can only function if there are ongoing bitcoin transactions that need to be verified on the blockchain.
Another possible reason is that the coin’s developers intend to continue adding new features indefinitely. One of the most popular cryptocurrencies, Ethereum, is still being developed after seven years on the market. Indefinite commitment to a single coin can often be profitable for developers by making the coin more attractive as a long-term investment.
Why Do People Buy In?
Investors buy into ICOs for the same reasons that they buy into any other way to obtain a crypto coin- optimism. ICOs are often accompanied by marketing campaigns that explain why people should invest.
Depending on the coin, these reasons could include a trustworthy developer, an experienced development team, or a revolutionary feature.
Investors might be drawn in by marketing or rumors, but it takes more than that to get them to part with money. Every cryptocurrency is released alongside a lengthy mission statement called a whitepaper. These whitepapers are meant to contain everything an investor should know about a cryptocurrency, from purpose to features to the coding concepts behind it all.
A whitepaper is one of the first things investors research and can make or break an entire coin depending on what it says. If everything seems legitimate, and other sources agree that the coin has potential, the choice to invest can often be an easy one.
Can ICOs Be Scams?
ICOs are almost entirely unregulated, and anyone with a flashy website and a rudimentary coin can get on the internet and make false promises about future development. Although regulatory bodies have begun to step in and police what they can, the world of ICOs is still fraught with scams. It’s very important to do your own research and keep yourself safe.
One of the earliest and most prominent examples of a scam ICO was the ICO for Bitconnect, a coin developed in 2016 that promised investors high returns on investment.
After two years and 2.4 billion dollars raised, the coin crashed to near-zero value and was discovered to have been based on a Ponzi scheme. Eventually, the founder of Bitconnect was charged with several crimes, and his case continues to this day.
Are there ICOs Going on Right Now? Which Ones?
According to icodrops.com (an excellent resource for tracking current ICOs), there are currently 24 active ICOs and 745 more scheduled to start in the next few months (as of 8 Jan 2023). There are undoubtedly more that the website doesn’t list.
These ICOs can have a wide variety of project goals. One of the most notable, WingRiders, is a utility project that hopes to solve some problems for decentralized exchanges on the Ethereum blockchain. Others, such as Optimism, hope to create their own blockchains for various purposes.
There are also a large number of ICOs for coins that specialize in NFTs, NFT gaming, or metaverse gaming. Due to the risky and hype-based nature of these fields, developers have been flooding the internet with such ICOs to see what sticks.
There are many examples of current ICOs for NFT-based coins. One is Iguverse, which is centered around a play-to-earn virtual pet game where players can own and customize their own NFT iguanas.
Another example would be Degen Gaming, a metaverse game coin that involves players each possessing their own custom NFT avatar and using it to start virtual bar fights with other avatars.
These wacky premises are not unique. Goofy core ideas are common among NFT and Metaverse-based crypto coins, especially those in the initial stages of development. Projects are desperate to catch the eye of anyone who might invest, and one of the best ways to do that is to have a premise that lets the art designers shine.
Hype-based projects often have detailed art and exciting rhetoric, but wise investors should look beyond the ‘cool factor.’
Even with hype-based assets such as NFT and Metaverse coins, it’s important to look beyond one’s own excitement to see what a coin actually has to offer.
Many projects have amazing art designs and ad campaigns that are used to distract investors from low-quality content. This is the biggest pitfall to watch out for as an investor, and many fail to catch it in time.
If you’re looking to invest in an ICO, you have your work cut out for you finding diamonds in the rough. There’s a huge number of ICOs out there, and the vast majority won’t prove to be suitable investments.
You need a keen eye and a sharp mind to sort through them, but there can be high returns if you do. Good luck!
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NFA: Not Financial Advice. IYOPS or the author(s)/editor(s) are not registered investment advisors or brokers/dealers. All investment opinions expressed are from the personal research and experience of the author/editor and are intended as educational material. Despite our best efforts to make the information available as accurate as possible, occasionally, we err, as humans do.
DYOR: Do Your Own Research before making any investment decisions based on your personal circumstances. We recommend taking professional advice before making any investment decision.
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Daniel Speth is a content writer at the International Youths Organization for Peace and Sustainability. He is also a final-year student at the University of Cincinnati, majoring in Rhetoric and Professional Writing as well as Creative Writing.
Inputs and Edits by Aswin Raghav R.