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What's an ICO?

Written by Alexandra Perry
Posted May 24, 2017

On the bus last night, I overheard a conversation that I knew was a game changer.

Right before my stop, the woman in the seat in front of me quietly disclosed to her friend that she had bought her son a Bitcoin (BTC) for his graduation present.

At first, this statement floored me. Then I realized I had heard "Bitcoin" dropped in casual conversations throughout the week. And if you haven't, too, you aren't paying attention.

We are reaching a point where digital currency investing is becoming mainstream. Bitcoin is a top-five Google search. And Ethereum (ETH) is nipping at Bitcoin's heels in position 18.

And this flurry of digital currency interest had me thinking: Maybe it is time to start defining more technical aspects of digital currency investing.

And the first thing I want to break down is an ICO.

What Is an ICO?

An ICO is an initial coin offering. For years, new digital currencies have used this unregulated method to drum up funds for their technologies. Often, they offer early investors better deals than late investors will get down the line.

A good example of a successful ICO would be Ethereum in 2014. Like many ICOs, Ethereum's team wanted capital in Bitcoin. It offered investors 2,000 ETH per BTC.

Bitcoin was still $650 at the time. And through the ICO deal, each Ethereum coin (Ether) was around $0.40. If you had put $200 into Ethereum at this early stage, you would be sitting on over $100,000 in profits.

That sum should have investors salivating.

And like investing in a startup company, you don't go into an ICO blindly.

Serious companies provide detailed summaries of their digital currencies for investors. These reports should cover:

  • Long-term goals.
  • Underlying technology.
  • The currency's unique function.
  • Plans for company growth and scaling.

From there, an investor has to decide whether an ICO is worth investing in.

I came into the world of finance as a startup investor, so this method makes sense to me.

An ICO functions like crowdfunding or an IPO. It offers investors a unique opportunity to make phenomenal returns on an early stage technology.

But there are also reasons to be wary of an ICO. Many coins flop after their releases. Don't just throw $100 into every coin that knocks on your door.

When you look at the Ethereum blueprint, you see the Ethereum team and Ethereum's founder Vitalik Buterin demonstrate knowledge and long-term planning. Remain vigilant for the right information in reports before you make your investing call.

If a currency fails to gain traction, your investment is worthless.

How Do I Find Out About ICOs?

The digital currency space is huge. With 700 currencies out there, it is getting easier to find information on upcoming ICOs.

And a great place to start is TokenMarket.

I picture TokenMarket as the Kickstarter of digital currency. The currencies that launch on this platform put together presentations, videos, and tutorials explaining their products.

They will have links to their websites and directions on how to purchase. Most digital currencies want payment in Bitcoin or Ethereum. I recently purchased one where I spent 0.5 ETH. The money came directly from my Ethereum wallet.

Warning: Many of these early stage companies are highly technical. And they don't accept certain digital currency wallets. That means you are going to have to read over their ICO blueprints and find out what wallets they accept.

But setting up an official digital currency wallet is a topic for a different day. It is a technical process that deserves a post to itself.

For now, I encourage investors to go and look at TokenMarket. Research the currencies that are in the ICO phase, and familiarize yourself with upcoming coins. Check out the ICO calendar, and decide what you want to watch.

In a way, this information can help you predict trends in the bigger currencies. Many people speculate that the Ransomware attack WannaCry had an impact on Bitcoin's price since affected companies were required to pay in Bitcoins.

In a similar way, a positive ICO can cause investors to buy more Ether and Bitcoin for a means of exchange.

A smart investor always has one ear to the ground.

Good luck and stay tuned for more digital currency updates.

Editor's Note: A lot of people ask questions in our comments section below. Feel free to tweet me at @AlexandraPerryC with questions or topics you would like addressed. I will try to supply you with timely information on article inquiries. Best of luck with your investments. 

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