Crypto investment banking has the resource, knowledge, infrastructure and the expertise to ascertain winnability. ICO’S value increases if there are more buyers interested in it. If the number of buyer is more and the amount of purchase is high, the valuation of ICO’S will increase exponentially. Hence the appreciation of ICO’S is hugely contingent upon the ‘’hype’’ that is created around it..
As a rule ICO’S are launched with a white paper. This white paper is a document issued by the developers which highlight their project and the specific features. For a novice investor understanding the white paper can be challenging. The crypto investment banks helps in understanding the niceties and particularities of the white paper in detail. The White paper will run through prominent members in the block chain community to get their backing. Getting backing is critical because this is where they will gain credibility required to carry forward the project. Crypto investment banking can come handy in deciphering the veracity of these backing
Crypto investment banking can filter the promising ICO’S from the laggards. Moreover it can also create the ‘’hype’’ around a particular ICO, by hyper marketing resulting in increased number of people investing in a particular ICO. The Crypto investment bank has the expertise as to which ICO will outperform by studying and researching the given ICO to the last decimal point. It has the research apparatus to come to correct conclusion
Usually the starting point of ICO’S are very low. Generally a cap is set on number of ICO’S. Setting a cap is necessary because having limited supply of ICO’S automatically increases their demand in accordance with the law of supply and demand. But in real life this may or may not happen. This can only be true if demand is high and supply is limited. The Crypto investing bank gives a good idea of the demand a particular ICO will have, which is made possible by extensive research they carry. This will make the investor make an informed decision.
Advertising ICO is necessary for its success. ICO’S are now able to advertise in number of websites. Crypto banking investment will help the subscribers in cross checking the authenticity of the claims made in the advertisement
Broadly there are two kinds of ICO’S
Currency ICO is when the developer bring in a new currency system. The developer give out tokens which become new crypto currency in exchange of the older more established coin such as Bitcoin or Ethereum.The reason why people are drawn to these ICO’S are that of investment opportunities. One of the best example of these kind of ICO’S is Etherum ICO.
In later 2013, a young programmer named Vitalik Buterin was working for Bitcoin as a developer and was getting increasingly frustrated. He realized that the blockchain technology had more potential than being a mere currency system. Ethereum, a platform where people not only will have access to a new form of currency (Ether) but they will also be able to create and develop a newer form of DAPPS on the platform itself.
The Ethereum ICO lasted for 42 days and went on from July-August 2014 and raised >$18 million. Back then it was the biggest crowdfunding even in human history. The early birds got a humongous ROI. In the beginning, if you invested just 1 BTC you would get 2000 ether in return. The current valuation of those 2000 ether is ~$420,000. Not bad for a $2500 investment! But more than the ROI the biggest thing that makes this particular ICO so important in crypto history is the concept of the project itself.
If you want an advertisement for why ICOs are so important, just read up on the Ethereum ICO. This was one man with a vision who got a dedicated and talented team around him, got the white paper out, convinced people to invest in his project and then ultimately made one of the most important platforms in crypto history. This is what ICOs should be like.
Along with the currency ICO we have the project ICOs which issue “work tokens”. When you buy these tokens in the crowd sale you gain certain rights and votes inside the environment of the DAPP itself. One of the most famous, and consequently, infamous examples of this kind of ICO is the DAO.
The DAO aka the decentralized autonomous organization was a decentralized venture capital fund which was going to be used to fund future projects made in the Ethereum eco-system. This how it was supposed to work. People invest money in the DAO by giving ether and they get “DAO Tokens” in return. These DAO tokens made the holders part of the DAO community. So, suppose Jill wanted a project to be funded by the DAO, she would introduce the project to the DAO community. The token holders will then hold a vote and if Jill gets the majority vote then she would gain the required funding from the DAO itself.
This was a revolutionary idea and was getting mainstream press exposure as well. The ICO went down in history as one of the biggest ever. The ICO raised $150 million in ether, that was the 14% of the total ether issued at that time and everything was looking up. Unfortunately, that is when the infamous DAO Attack happened and a total of $50 million worth of ether was taken away. This attack had huge repercussions because this was what caused the Ethereum hardfork and resulted in two different Ethereums: Ethereum and Ethereum Classic.
Another great example of the “Project ICO” is Augur, a decentralized market prediction system.
ICOs nowadays are raising a ridiculous amount of money, the Brave ICO, an Ethereum based browser raised in $35 million in 30 seconds. That’s ~$1.2 million per second!! The Tezos ICO recently became one of the largest ICOs of all time by raising more than $200 million.
What steps should be taken to ensure the safety of the funds aka how to not get scammed?
Unfortunately, because of the unregulated nature of the ICOs and the sheer amount of money to be made in this space, it does attract a lot of scammers. If you are investing in an ICO then you would want some assurances on your end that all the funds that you are going to invest are going to be used in a right way. So what should you be looking into when you are about to invest to make sure that you are not going to get scammed?
The project developers should be able to clearly define the purpose of their project using simple and short sentences. If they are taking too much time and beating around the bush, then that either means: their agenda is not clear or they are hiding something. Both of which are not that encouraging scenarios.
Make sure that the developers are not anonymous. There should be 100% transparency when it comes to their names, business plans, locations etc. You should be able to contact them regarding any and all information that you need to get from them.
There should be a legal framework between the developers and the contributors including terms and conditions set for the ICO.
Lastly, and most importantly, you need to make sure that the ICO funds are being stored in an escrow wallet. An escrow wallet is basically a multi-sig wallet which needs multiple keys to be opened. One of those keys must be held by a neutral third party.
If you keep these 4 points in mind, then you will be able to spot the scammers with relative ease and invest in projects which have real potential
What are the Pros and Cons of ICOs?
Pros of ICO
Gives opportunities to promising projects: Think of what Ethereum has accomplished in the last year. From becoming the second most powerful cryptocurrency in the world to providing a platform for DAPP creators to create their projects. It is truly becoming the “platform where the future will be built”. All this got started because of an ICO.
Doesn’t require unnecessary paperwork: Many projects don’t get executed because they get caught up in the red tape. For raising funds through IPOs or crowdfunding the project developers need to go through a lot of paperwork and more often than not, they just don’t get the documentation required to collect funds for their project. On the other hand, all that you need to do take part in an ICO is create a “white paper” (The white paper contains all the details of your project.) After that, anyone can read the white paper and choose to invest in the project if it interests them.
Community building: It gives the project creators an opportunity to build a community around their projects. Having a healthy community gives a product immense credibility. Plus, the members of the community can have real say in the direction of the projects and keep the creators accountable.
Exposure for projects: The hype that surrounds an ICO can do wonders for the exposure of the project. The more the exposure, the more the people will know about the project. This increases the number of potential investors.
Early access to potentially valuable tokens: Some tokens have the potential of becoming truly valuable cryptocurrencies. ICOs give investors an opportunity to invest in tokens, with potential, for dirt cheap. Eg. During the Ethereum presale, 1 Ether cost 35-40 cents. Right now, as of writing, 1 Ether costs ~$277.
The incentive for innovation: The roaring success of various ICOs over the last 12 months has given extra incentive to various developers to innovate and develop more exciting projects.
Cons of ICO
Attracts a lot of scammers: Because there is so little paperwork involved in ICOs it attracts many scammers who can simply create a bogus white paper and make off with a lot of money. Some developers also purposefully omit certain important details from their white paper to make their projects look more appealing than they actually are. The biggest consequence of all these scams is the decreased faith of the public in blockchain technology which can potentially spell absolute disaster.
Based on pure speculation: When you are investing in a project in an ICO you are investing in the idea of the project. You read the white paper and if you think that the team is credible and the project has promise than you invest. So, basically, you have no idea whether the project will even be successful or not. Over 90% of the startups fail and blockchain projects are not immune to that as well. Plus, the developers may get lazy and not even bother to finish what they have started. And, let’s not forget, there is always the possibility of a project getting ruined because of hacks and attacks. The DAO is a perfect example of that.
in your ether wallet but tokens made outside of Ethereum can be very complicated to store.
Government intervention: This is where it gets scary. Because of the increased number of scams and a huge amount of unregulated money, various governments may simply decide to start regulating the ICOs. If this happens then this truly could be the death of cryptocurrency. The whole point of cryptocurrency is the idea of decentralization and being outside of government control.