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In today’s article, we will discuss the definition of altcoins along with the concept of initial coin offering (ICOs).
Alt Coins are actually an abbreviation for alternative coins. Coins other than bitcoin such as Ethereum (ETH), Solana (SOL), Polygon (MATIC), Ripple (XRP), etc are commonly referred to as altcoins. Although Bitcoin is the most well known and valuable of the lot, it does have some downsides and these alt coins usually try to represent a better or different version of Bitcoin such as faster transactions or provide more privacy to the users.
One of the distinctive downsides of an alt coin is, many of them are relatively unknown and there are only a few exchanges and wallets that support them, making them harder to buy. Until today, thousands of coins have been introduced, however only a few seem to have gained popularity over the course of years.
ICO stands for initial coin offering. Most of us might be familiar with the traditional finance term “IPO”, which denotes Initial Public Offering and ICO is basically similar to it in the coin universe. An IPO is used to describe the launch of a company on a stock exchange, also commonly referred to as “going public”. The purpose of the IPO is to raise capital for the company by selling the stocks of the company to the public.
On the other hand, ICOs sell coins known as tokens as a way to fund a specific project. The general idea is, if the project is believed to succeed, we buy the tokens to fund the project beforehand at a discount, and we will be able to sell them later at a profit, when the project succeeds. After the ICO is set-up, the public can send money to the project by investing in the ICO and receive project tokens or coins in return. If the money raised by the ICO does not meet the minimum requirements of the ICO, they are returned back to the investors and they are deemed to be unsuccessful. In summary, ICOs are basically a Kickstarter for crypto projects.
While conducting an IPO requires lots of restrictions and regulations to comply, ICOs skip their entire burden as they raise the money in crypto assets that are yet to be regulated across the world. One of the most popular and lucrative ICO was that of Ethereum. When they launched back in 2014, one ether token (ETH) was sold for around 40 cents (₹25.18 in 2014), which is currently trading at $1,065 or roughly ₹ 85,000. If you had spent ₹100 to buy 3.97 ETH, it would have been worth around ₹ 3.3 Lakhs currently.
Just like the possibility with any financial instruments, it contains greater rewards as well as risks. Although ICOs might seem lucrative, many actually try and fail to garner the attention and interest of the public with their projects. On the other hand, ICOs can actually be hacked. One of the worst examples of a disastrous ICO is the DAO ICO. The decentralized autonomous organization project managed to raise $150 million worth of Ethereum. However, after the ICO ended a hacker managed to steal a third of the amount raised due to a bug in the code of Ethereum.
Before deciding to invest in an ICO, try to find answers for the following basic questions and try to see if they align with your risk appetite.
Our advice is not to invest in something that you do not understand to begin with. If you are just starting with ICOs and Crypto, please do a fair amount of research on the projects before committing.
To sum it up, ICOs should be considered as risky as gambling and are a new form of crowd funding that only a very few people understand. Due to the irreversible and unregulated nature of the crypto asset, people do not have an alternative or a recourse, if an ICO turns out to be unsuccessful or a scam.
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Disclaimer: This article was authored by Giottus Crypto Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.