If you are interested in investing in a blockchain startup, then you have to know the risks. Although the method of the Initial Coin Offering (ICO) is still relatively new, it has attracted attention from the media and the public. Many entrepreneurs and investors are tempted because they consider ICO a quick and easy way to get money.
For information, ICO is a method of crowdfunding done by blockchain startups. When conducting an ICO, the Startup will often explain the solution they will offer in a document. Investors who join in the fundraising will later get some cryptocurrency tokens.
But of course, not everything you read about ICO is right. The more rumors circulating, the vaguer the line between fact and fiction.
Like Other Investments, ICO Has Risks
Death and taxes are still two things that will happen in life, while the success of an ICO, is not. The chances are that you will not benefit as you expect.
In February 2018, TokenData released data related to all startups that conducted ICO in 2017. And as a result, 46 percent of these startups have stopped operating.
The percentage of failure should not make you afraid to do ICO. This should make you think twice when creating a vision, plan for making a product, and team members. Because with the emergence of many ICOs, it means more choices are available for investors. This pushes them away from ICO that looks weak or does not have some critical components.
ICO Cannot Be Withdrawn Fast
It is true, ICO is often predicted as alternative funding that is faster than venture capital funding (VC). But it's very wrong if you think you can successfully set up an ICO within a few weeks. You will need a long time to complete the whitepaper document containing the target market, product character, and product development plan.
Besides, you also need time to build a large enough community and digital footprint to attract investors. According to CoinTelegraph, the stage of building a community before announcing the ICO can officially take between six months to a year. Whereas it took about three months since the ICO was announced until it was fully operational.
Tokens and Coins Are Two Different Entities
Although these two terms are often used interchangeably, they are not the same. Some differences between coins and tokens must be understood by people if they want to launch cryptocurrency.
A coin is a variable that has only one function and one value. For example, Bitcoin, which can be moved from one user to another (through buying and selling transactions or payments) has one value only.
While Tokens can have more than one function and value, for example, Ethereum, which can be moved from one user to another user, also has a Smart Contract feature to store other information.
Not All Crypto Consultants Are Qualified
Not all cryptocurrency startup advisers do the same thing. Some advisers are willing to roll up their sleeves and provide direction regarding the development of teams and products while some other advisers are reluctant to do that.
When a startup wants to choose an adviser to help product development plans and monitor the implementation of technology, they must consider many things. The best way is to get an adviser with a specific background in the field of cryptocurrency, as well as experience leading a company development. For example, someone with a strong blockchain programming experience, might not understand the right way to build a team.