The world of cryptocurrencies can be very broad and confusing for those who are not fully in it. However, if you want to invest in an ICO you have to know everything you need to not lose your money or that you are disappointed.
What most confuses people a little is the whole issue of tokens or tokens, how they work, what to do with them and all that matter. So if you want to invest in an ICO and you have no idea what a token is or what to do with it after the investment, do not stop reading.
What is an ICO and how does it work?
ICOs are like the daughters of the IPOs, which is when people invest in shares of traditional companies. In an ICO (initial offer of currency) is also invested in a project, and that money is used to develop, launch and market a cryptocurrency or blockchainecosystem.
However, in the IPOs there are shares of the company, which represents a part of it. In the ICO list the so-called “tokens” were created, and they are the ones that can give you benefits in the future in exchange for your investment.
What is a token?
Basically, it is what you receive in exchange for your investment and that you can take advantage of in three ways: dividends, appreciation of the token or resale’s of it. The most likely is that you take a little time to get some benefit from that token, and everything depends on the value you get later.
How does a token acquire value?
Here the oldest law of the economy enters into action: supply and demand. Basically, for a token to acquire value, there must be more demand than the offer that there is for it. That means that you are looking at both sides of a coin: how the demand will go up and how the supply will stay the same or will decrease.
How does a token offer decrease?
The traditional way is to create a limited amount of tokens. In this sense, the value of a token can rise and since the offer will always be the same, the demand will also rise. Another option is for the project to buy some tokens that are in circulation and destroy them, so that there is less supply.
The demand for a token is based on the services offered
Token demand is based on its utility, or in simple terms: how the token is used. These can be used in different ways depending on the business model, although we will focus on the utility in terms of service within the product (or other products). For this, we will have to take a closer look at the services that the product offers, and the size of the potential business.
Are the services you offer so well that they will cause great demand? The more people who use the service, the more they will pay for the token, and the more expensive it will be. Generally speaking, the services offered that cater to the crypto crowd or depend on the demand of other crypto ecosystems generate more value.
Back to supply and demand
Now, what really interests you: how to know if a token will have value after investing in the entire ecosystem of the ICO?
Investments always bring with them some risk, and they will never be completely safe. It is something you must understand before giving your money. The least risky ICO would be a project that has revealed its bottom-up market size, with a product in a space that is favorable to crypto adoption. In other words, not something like Karmatoken. Anyway, these projects are rare unicorns, so you’ll have to take risks at some point.
The more complex the token economy is in terms of supply and demand, the more time you will have to invest in the project due to the diligence of extracting the true value of the services offered and the market it serves. You will have to be very aware of the problems that the product faces before it starts to generate profits.