Types of Initial Coin Offerings

The two types of initial coin offerings are listed below:

1. Private ICO

In private initial coin offerings, only a limited number of select investors can participate in the process. Usually, only accredited investors (such as those associated with financial institutions or high net-worth individuals) can participate in private ICOs, and a company can choose to set a minimum investment amount.

2. Public ICOs

Public initial coin offerings are a form of crowdfunding that is aimed at the general public. It follows a rather democratic process for investing because almost anyone can become an investor. However, due to regulatory concerns, private ICOs are becoming a more viable option relative to public offerings.

Who Can Launch an ICO?

Since there are very few regulations in the field of cryptocurrencies in general, currently anyone with access to proper tech can launch a new cryptocurrency and subsequently, their own ICO. But the lack of regulation allows people to try and fool others into believing the legitimacy of their ICOs as a means of fraud. Of all the possible avenues of funding, an ICO is probably one of the easiest to set up as a scam.

Appropriate research must be conducted before investing even a single penny into an ICO, one should make sure that the company organising the ICO is real and accountable with some future prospects. If it seems the project doesn’t involve anyone with relevant, easily verified experience, that’s a red flag.

Famous actors and entertainers like Steven Seagal also sometimes encourage their followers to invest in a hot new ICO.1 Boxing superstar Floyd Mayweather Jr. and music mogul DJ Khaled once promoted Centra Tech, an ICO that raised $30 million at the end of 2017. Centra Tech was ultimately deemed a scam in court, resulting in the two celebrities settling charges with U.S. regulators, plus three Centra Tech founders pleading guilty to ICO fraud.

Special Considerations

ICO activity began to decrease dramatically in 2019, in part because of the legal gray area that ICOs inhabit. Investors can research and find ICOs in which to participate, but there is no surefire way to stay abreast of all the latest initial coin offerings. You can use websites that compare different ICOs against one another.

ICOs can generate a substantial amount of hype, and there are numerous sites online where investors gather to discuss new opportunities. Investors seeking to participate in ICOs should first familiarise themselves broadly with the cryptocurrency space and become educated about any ICO before participating. Because ICOs are barely regulated, prospective investors should exercise extreme caution when investing.

There is no guarantee that an investor won’t be on the losing end of a scam when investing in an ICO. To help avoid ICO scams, you can:

1. Make sure that project developers can clearly define what their goals are. Successful ICOs typically have straightforward, understandable white papers with clear, concise goals.

2. Look for transparency. Investors should expect 100% transparency from a company launching an ICO.

3. Review the ICO’s legal terms and conditions. Because traditional regulators generally do not oversee this space, it is an investor’s responsibility to ensure that an ICO is legitimate.

4. Check that ICO funds are stored in an escrow wallet. This type of wallet requires multiple access keys, which provides useful protection against scams.