CRYPTOCURRENCY 101 (#7): WHAT IS AN “ICO”? HOW TO READ WHITEPAPER FAST?
What is an ICO?
An ICO (Initial Coin Offering) is similar to an IPO (Initial Public Offering), where a stake of the startup or company is sold to raise money. Specifically, it is a fundraising mechanism in which new projects sell their Tokens in exchange for Bitcoin or Ethereum. However, while an IPO deals with investors, an ICO deals with supporters that are willing to invest in a new project which is pretty much similar to a crowdfunding event. Nevertheless, ICO supporters expect in prospective return in their investments, whereas the funds raised in a crowdfunding campaign are mostly donations.
What is a Whitepaper?
Basically, a Whitepaper is everything we need to know about a cryptocurrency, which must be released before an ICO. This file usually contains a detailed description of the system architecture and its interaction with users. It means this document lays out facts about the Blockchain, protocol, or distributed application (dapp) that is being built, and describes how the Tokens will work. There are also current market data and growth anticipations, as well as requirements for the issue and the use of Tokens. In addition, it provides a list of project team members, investors and advisors. Sometimes, it is a full technical document, other times it is mostly marketing.
How important Whitepaper is?
Whitepaper is a very important factor to define whether a cryptocurrency is a scam or not. Therefore, if we really want to invest in any cryptocurrency without losing our money foolishly, the first thing we have to do is to read their Whitepaper.
How to read Whitepaper fast?
A Whitepaper sometimes can be only a few pages, other times it can be hundreds of pages. However, we do not have to read them all. There are several things that we just have to pay attention:
1. What is the problem? A good Whitepaper should define a realistic problem that happens now or in the near future with reliable sources.
2. What is the solution? They should have a good descriptions that explains how their products cansolve the mentioned problem.
3. How do they implement their Tokens? They must explain how their Tokens works with their products, economics and technical issues.
4. How is their team? They must have introductions for major members of their team, and where supporters can check their profiles.
5. How is their Roadmap? They must have a clear plan with timelines for their Tokens deployment.
Not every cryptocurrency with a “clean” Whitepaper is a decent business. There are multiple factors to verify how trustworthy a cryptocurrency is. However, Whitepaper is the first important thing that we should know when it comes to a cryptocurrency or an ICO.