What is crowdsale
Since its inception, blockchain technology has been widely used. On its basis, many interesting and useful projects function, and new ones are constantly being released. To implement most of the ideas, impressive funding is required, which innovators are trying to attract at an early stage in various ways, including crowdsale.
Crowdsale is a token pre-sale organized to attract collective investment in a new project before being placed on the ICO. During the crowdsale, people are invited to purchase tokens of the future project, and the proceeds go to its development and ICO.
You can create your own cryptocurrency on the platforms Ethereum, Waves, Tezos, EOS, Gnosis. These platforms offer the opportunity, based on the blockchain standard, to develop unique tokens for any purpose, even for beginners.
For the development team, token sale is a fairly simple way to launch an idea at the initial stage of development, without a long search for a large investor. For investors, this is an opportunity to purchase tokens at the lowest price, as well as receive additional bonuses from their purchase. Some projects provide for the payment of dividends to token holders or the ability to use the services of the company.
Behind any undertakings is the laborious work of a team of startupers, the costs of developing and maintaining the functionality of software, conducting research and marketing events. All this requires funding, which is often not affordable for the development team. Therefore, the main goal of crowdsale is to attract collective financing in a new project to maintain its entry into the market.
The second goal is no less important, although it has a secondary function. Carrying out crowd sale tokens, developers can evaluate the prospects and relevance of a future project. A low demand for tokens indicates the presence of flaws in the concept or the lack of sufficient demand for the final product. It is at this stage that there is still the opportunity to make significant changes or stop the project. Also, based on statistics on the sale of coins, you can calculate future profitability and income.
EtherDelta cryptocurrency exchange places the hot tokens of projects on sale the fastest, and their prices often coincide with those offered after an ICO on the official listing exchanges.
Differences of crowdsale from crowdfunding
The main difference between crowdsale and crowdfunding is in the form of an asset that an investor acquires. The classic collective fundraising for a new project (crowdfunding) offers pre-orders for services or products of a future project. While investing in crowdsale, buyers acquire the company’s digital units at a primary cost to support development, which can later be used to make a profit. Company coins can be traded on the stock exchange, earning income from speculative actions, paying for project services or receiving dividends.
Crowd sale also offers complete project independence and the absence of the need to legalize investor income.
Security and Legal
Recently, investing in new projects related to the development of blockchain technology is at the peak of popularity. But not all are being implemented. The reasons may be as follows:
- The project will not receive sufficient funding, and the investors who support it will lose their investments irretrievably.
- A promising project can dramatically lose ground due to management errors.
- After receiving financial support, the development team may stop its implementation.
Crowdsale is a high-risk financial investment, which, in addition to standard risks for the investor, is also complemented by the absence of a legislative regulation of the process. In traditional investing, accredited investors can rely on legal protection of their investments. The cryptocurrency market has a decentralized management system in which most of the legal laws do not apply to it, and finances belong to the informal sector of the economy.
The lack of political influence on cryptocurrencies provides her with a lot of advantages, but token holders are completely not protected from fraudulent activities. When investing in crowdsale, there is no actual legalization of relations with the project team. Cryptocurrency investors have to rely only on the trust and reputation of the creators, taking into account the high degree of investment risk.
The only consolation fact is that the cost of tokens after entering the market can bring significantly greater profits not only to investors, but also to the creators. So the development team is no less interested in the successful implementation of the idea.
How can an investor minimize risks
The highest profitability is brought by projects with a high degree of risk of loss of investments. In order to minimize risks and really earn on crowdsale, you should adhere to the general rules and take into account the features of the investment method.
First of all, it is necessary to evaluate the elaboration of the idea. At the crowdsale stage, it is the idea that is the subject of financing and the further success of the project depends on its prospects and the correct formulation. It is desirable that the chances of its success are confirmed by successful testing or actual development.
Crowdsale comes from the English words “crowd” (crowd) and “sale” (sell), which fully reflects the concept of the event. The high level of interest of the crowd of investors in the project indicates that it will most likely be implemented and soon the tokens will go on free sale on exchanges. While an insufficient indicator of interest can cause the project to not even go through an ICO.
The competitiveness of the future project has a huge impact on the value of the company’s tokens. Since the cryptocurrency market is developing rapidly, at the crowdsale stage, several projects of the same type may appear at the same time. This increases the risk of failure of one of them due to lack of adequate funding. You should also consider competitors who already have an established project and the degree of real superiority of the new over them.
Correctly assess the relevance of the project to end users, whether the services and ideas offered will really be needed, and what coverage the target audience can count on.
The liquidity of tokens can significantly reduce the risks of their purchase. Projects offer various further uses of domestic coins. For example, profits from company dividends, in-house use, sale at an increased cost. Ideally, if the selected project has several options. So, if the project was implemented, but the cost of the tokens did not change the indicators too much, then the investor can still rely on profit from profits or reimburse the investment made by the project services.
Carefully study the White Paper project, which reflects the concept and strategy of future development in full, examine the team members and their previous successes.
Particular attention should be paid to development strategies. It is important to direct the attracted finances to the development of the company’s capitalization, and for this, developers must not only have perfect knowledge of the blockchain and IT technologies, but also be well versed in planning and running a business.
It is always worth remembering that only free finances should be invested in high-risk projects, allocating only part of the investment portfolio to one project.
Crowdsale is a new convenient method of attracting investments, which provides additional opportunities for investors to earn money and makes it unnecessary to confirm income and pay tax on it. It has a high level of profitability and risk. Thousands of income can be obtained even with the investment of insignificant finances. In order to minimize risks, choosing a project for investment, you should pay close attention to the development strategy and the development team, whose actions determine the future value of the token and the operability of the project.