A Quick Guide on Initial Coin Offering (ICO)
Are you looking to make it big in Cryptocurrencies lately? It is time to start following trends of Initial Coin Offerings.
The idea of presale coins or tokens of blockchain projects proved to be a successful way to raise funds to develop new projects. The amount of money raised through ICOs in previous years is quite astonishing. In 2018 alone, there were 1258 ICOs announcements, raising funds of $7,852,477,041.
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What is ICO?
ICOs abbreviated as Initial Coin Offering, has become a prime source of crowdfunding systems, in exchange for cryptocurrencies or tokens for funding project developments. The developers collect funds from investors to launch the project. The whitepaper contains the technical details of operations of cryptocurrency, and the developers work to design the currency to support the project.
Today, most token sales run on the Ethereum blockchain via a smart contract. These smart contracts collect Ethereum tokens and automatically exchange them for new tokens owned by a startup. This is a P2P system that does not require any exchanges or brokers as middlemen.
At the time of penning this down, there were more than 7000 cryptocurrencies listed on the website Coinmarketcap. More than 1,000 coins are now available on various exchanges, and many are in the process of listing. Notably, not all cryptocurrencies get hosted on their unique Blockchain. They get issued on top of an existing blockchain, however, they can still develop their own blockchain and migrate in future.
History Of ICO
Back in 2013, the first ICO was by Mastercoin, which raised around the US $600,000 for a project to build a Bitcoin exchange and transaction network. The first ICO-distributed cryptocurrency was XRP.
Ripple Labs began to build a payment system called Ripplenet in early 2013 and issued about 100 billion XRP tokens, the native token of the platform. Those tokens were sold to finance the Ripple platform‘s growth.
Later in 2013, Mastercoin agreed to build a layer on top of bitcoin to conduct smart contracts and tokenize Bitcoin transactions. Some million Mastercoin tokens were sold against Bitcoin by the creator.
Several other cryptocurrencies with ICOs have been financed. For instance, Lisk, which sold its coins for around $5 million in early 2016, has funded several other cryptocurrencies through ICO. Ethereum is the most popular blockchain for such ICOs. The Ethereum Foundation sold ETH for 0.0005 Bitcoins each in mid-2014.
How Does Initial Coin Offering Work?
Before raising capital for your startup, it is necessary to understand the fundamental work process of the Initial Coin Offerings. These are some of the steps which help in making the token sales, a huge success.
- Initially, a blockchain project is proposed, wherein the funds get raised through Initial Coin Offering.
- Further, a whitepaper is published. The whitepaper contains technical details, business models, and a roadmap for the company.
- The working prototype for the projects will not be known.
- Create a social awareness of the project. Specifically through marketing campaigns via social media and search engines.
- Marketing and its response provide a brief idea of the number of tokens to be made available for selling. It also provides an estimate for the amount to be raised for their project.
- Eventually, ICO token sale begins wherein the investors start buying tokens in exchange for cryptocurrencies.
- After the completion of the event, the tokens are made available for exchange
How To Participate In ICOs?
- To invest, the first step of the process is to analyze which project or company offers potential.
- After you’re done with research and are willing to participate in the ICO, the next step is to create an exchange account.
- Set up a cryptocurrency wallet when searching through the ever-growing number of ICOs hitting the worldwide site.
- In addition to recognizing the ICO itself, due diligence is recommended against scams.
- ICO Rating provides investors with a complete evaluation of the project or business in question and other organizations providing any additional context if further details are necessary.
Comparatively, ICOs have more pros as compared to IPOs. ICOs use tokens for their crowd sale, as users are now moving from crypto coins towards tokens. Let’s dive deeper into the benefits of ICOs.
- The token offering facility of ICOs makes them more unique. However, the Initial Coin Offering issuers provide tokens or sell their tokens to investors for fundraising. The tokens have complete details about the ICO process.
- ICO requires some time to plan, write a whitepaper, create tokens and collect funds. When compared to Initial Public Offerings, ICO requires less time. While in IPO, it is not possible to find all interested investors, in Initial Coin Offerings, we can reach out to all the interested investors who made ICO a success.
- The status of the projects can be openly tracked by investors on the Blockchain. The blockchain is a distributed ledger that provides all investors with knowledge about the daily Initial Coin Offering processes. Eventually, this decentralization prevents the issuer’s fraudulence activities over investors.
Evaluating An ICO
It is always necessary to evaluate every aspect of the project and cut it down to its precise execution strategy. Keep these following points in mind while analyzing an ICO.
- Initially, focus on the strong points and weak links of business models. Enquire from people who understand the technology, to get detailed information.
- Look for ICOs having teams with a proven track record in the crypto-asset and the blockchain industry.
- Always visit the open forums on Reddit, Twitter, or Facebook pages of the projects. Also, be aware of paid reviews or bounty posts that pay participants to spread fake news about the project to showcase false success.
- Involving a big crypto Venture Capitalist (VC) is a positive sign. See if the company has VC support. It is more beneficial if they have a VC on their executive board.
- Research on similar businesses of the industry by matching the fundamentals of the working of the company.
Future Of ICOs
To date, the methods of ICOs have experienced only success, and there are some fundamentally strong projects where a correction is due in time. Some sort-of red taping is expected around ICOs soon.
Having a strict framework will always help in separating good projects from bad ones and potential scams. When it comes to a regular investor, it is necessary to weigh the benefits, risks, and potential legal upswings of the ICO landscape before investing.
With growing numbers of Initial coin offerings, the funds generated also increase significantly. Return on Investment (ROI) and the total funds raised are also important while assessing ICOs.
ICO’s have proved to have become the best way to raise capital lately. If you think you can make it big on a new ICO, make sure you do your research in advance. Cryptocurrency ICO has emerged as high risk and high reward asset.
Both are Fundraising events.ICO or Initial coin offering is an event monitored by the company selling its stake to investors, and raises capital to support new coin or service developments. Whereas, IEO is an event where Cryptocurrency exchanges raise capital on behalf of the startups.
IEOs are offered by Cryptocurrency exchanges on behalf of the startups. Since IEOs scrutinize the startups thoroughly, investing in IEOs launched on reputed Exchange platforms may be safe. Due Diligence is necessary.
ICOs are events where investors pay directly to the company and trust them to deliver on their promises. But IEOs are offered by Exchanges, which scrutinize the Startups before they launch IEO. Although IEOs are most preferred nowadays, your investments are to be made after Due diligence.