W

e can relate to many investors, young and old who wish they had a chance to invest in Bitcoin when it was young and unproven. It almost feels unrealistic to join the crypto space now, since the chance to make big money early in the game has passed us by.

However, there are ways today to join the cryptocurrency space and still benefit greatly. For the bold and the lovers of high-risk high-reward, ventures investing in new upstart digital coins and tokens are one of the best ways to hit the ground running.

There are multiple ways to invest in upstart coins, but today we will talk about a select three:

  • Initial Coin Offering (ICO)
  • Initial Exchange Offering (IEO)
  • Security Token Offering (STO)

Initial Coin Offerings - ICO

ICOs are most likely the one you’ve heard about the most, so we’ll start with them. An ICO is a risky, but potentially rewarding investment into a new start up cryp-tocurrency. The company or start-up will release a white paper, usually a document that out-lines the way the new coin or system works.

Photo by André François McKenzie on Unsplash

Then, in a sort of, “early-access” feeling event, the company will ask you to send them money (usually in another cryptocurrency, like Bitcoin or Ethereum, though fiat is sometimes taken as well) in exchange for their brand new "digital coin".

The investor essentially is making the bet that the valueless coin they have decided to invest in will grow in popularity and usage, therefore increasing the value of the coins purchased.

The company in exchange can now back its new digital coin behind bitcoin, ethereum, or a fiat currency if they choose. Of course it also goes without saying to be careful when taking part in any ICOs.

ICOs are not regulated like their traditional counterpart IPOs (Initial Public Offerings) and as a result many scams exist. (Read more: OneCoin - The Multi Billion Dollar Crypto Fraud)

China and South Korea have already banned ICOs and founder of Wikipedia, Jimmy Wales, said in a 2017 CNBC interview:

“There are a lot of these initial coin offerings which are in my opinion are absolute scams and people should be very wary of things that are going on in that area.”

Still few ICOs prove to be successful, a recent example being Telegrams ICOs, which raised 1.7 billion dollars.

Initial Exchange Offerings - IEO

Facing more scrutiny and with social media platforms such as, Snapchat limiting marketing of ICOs, Initial Exchange Offerings (IEOs) provided a solution for raising funds without the intervention of government or law, and the potential mistrust of potential investors.

Photo by Austin Distel on Unsplash

An IEO is conducted on the platform of a cryptocurrency exchange and the IEO is administered by an exchange on behalf of the start-up or company that is attempting to raise funding for its new coin.

The exchange does its due diligence, vets the new product, and this is generally safer than the usual ICO. Since the buying of the new coin is done by the hosting exchange’s platform, token issuers pay a listing fee as well as a percentage of the tokens sold during the IEO.

This allows the host of benefit since the hosting crypto exchange will take a percentage of the token sold by the start-up. To participate in an IEO, unlike with an ICO that uses smart contracts, you will need to create an account on the exchange platform that is conducting the IEO.

Once you fund your wallet with coins on the platform you can use those funds to buy the start-up’s tokens. Many sites, such as, coincodex.com and the Binance LaunchPad have listings of upcoming IEOs so it is very easy to stay in the loop with when they are happening.

Security Token Offerings - STO

Another way start-ups may raise funds are via Security Token Offerings. With STOs, similar to ICOs, investors are issued with a crypto-coin or token that represents their investment, however, the security token represents an investment contract into an underlying investment.

A real-world similarity would be traditional stocks, where ownership information is written and issued as a digital document. STOs are exactly the same, but the information is recorded on a blockchain and a token is issued instead of a digital document.

Image by Jason Goh from Pixabay

If you are seeking a more secure investment method an STO might be the best way to go. Unlike an ICO that is not regulated at all, STOs are meant to offer an investment contract under securities law.

Many start-ups that intend to conduct STOs have to make sure they are legally compliant and the funds they raise typically have to come from accredited investors. However, despite this, STOs have also been banned in multiple countries including China, South Korea, Vietnam, India, and Pakistan.

Still some of the benefits may appeal to investors and start-ups, STOs are typical cheaper since they bypass the middle-man, and security tokens are backed by real-world assets, where as purchasing a digital coin via ICO means you are purchasing a coin that doesn’t; have a well defined value.

In the end, all investments involve risks, but understanding the the inner workings of each method and its regulations can ensure you are better protected from scams and projects that are doomed to fail from the start.

We recommend you always research before you invest or purchase anything. You can also use our forum to post any questions and our community can offer their opinions too.

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Updated on
October 15, 2019
 in 
Institutional
 category

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