Cryptocurrency 101: An Introduction To Bitcoin, Cryptocurrency, And The Blockchain by Finch Andy

Author:Finch, Andy [Finch, Andy]
Language: eng
Format: epub
Published: 2019-09-28T16:00:00+00:00

CHAPTER 6: WHICH PROJECT TO BACK?

The first thing you need to know before purchasing any coin or token is how to conduct appropriate research. We all have different risk tolerances, knowledge, and experience, and this shapes our view as to whether a coin or token is a good or bad investment.

This is totally subjective, and there are no right or wrong answers. Everyone has a view for and against practically everything, and it is no different in the crypto world.

The objective of this section is to arm you with sufficient knowledge to make you shrewd enough to uncover potential red flags, and to identify things to consider before investing your hard-earned money. You will have some of the tools to conduct further research beyond seeing names or symbols of coins on exchanges.

The techniques to conduct research are mostly similar for both ICOs and more “established” coins or tokens. Although there are no guarantees in any crypto investments, you need to do as much research as possible to limit your risk and hopefully make a profitable investment.

Always approach your research objectively and with skepticism to protect your investment as best you can.

Before we launch into this, let’s go through some preliminaries for ICOs and how these function. This will give you a good foundation to then build on going forward.

INITIAL COIN OFFERING (ICO): THE CRYPTO “PENNY STOCKS”

Let’s start with a “standard” ICO. This is nothing to be afraid of or feared. This is basically the crypto equivalent of a crowd-funded initial public offering (IPO). An IPO is where a company looks to list on a traditional stock exchange and is seeking capital from investors.

IPOs are regulated (rightly so!) and this usually means you need to be a “qualified” investor with a minimum amount of capital to invest (usually in the millions) as defined by the regulations in place. There are some spots open to the general public for IPOs, but institutional investors usually snap up the lion’s share.

The ICO is a popular way for start-up crypto companies to crowdfund and get their company off to a flying start. The idea is very simple – an individual or team of people come up with a business idea to sell a product or service and investors will invest in this ICO if they like what they see. This new ICO will normally create a new cryptocurrency, the ICO’s new coin, which can be equated to shares in a traditional company.

For example, Joe Blow develops a business idea to sell widgets of some sort to the world. Joe goes to market this idea through social media and other sales channels and finds there is sufficient demand for his widget. Joe has little to no capital left, so he decides to launch an ICO to get crowd-funding to help his business plan take off. The ICO launches, and Joe offers everyone who buys his ICO his own coin. Let’s call it this fictitious coin “JBcoin” (Joe Blow coin), which he will sell in exchange for investors’ cryptocurrency.

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