An initial coin offering (ICO) is a modern take on a time-honored method of raising funds from investors. This is due to the fact that all of the companies involved in this funding request use Blockchain technology. Continue reading to learn more about what an ICO is and how you can participate in the process.
The ICO stands for Initial Coin Offering, and in many ways, this fundraising exercise is similar to the commonly available Initial Public Offerings (IPOs) on stock exchanges. ICOs were created to assist promising entrepreneurs and companies seeking financing to accelerate their growth.
Crypto ICOs
The term "initial coin offering" (ICO) is used in a number of ways. Crypto Initial Coin Offerings, Token Initial Coin Offerings, UK Initial Coin Offerings, and US Initial Coin Offerings are only a few words that are widely used in announcements and forums. In fact, only minor differences exist between these offers, such as where they are located or whether they are selling a coin or a token.
ICOs are becoming more common in general because they favor both the business and the investor. The following are the key advantages for the company:
Obtaining much-needed funding without having to deal with a mountain of regulations
Demonstrating interest in the potential solution in the market
Receiving funds thus not giving up valuable business equity in the majority of cases
Financial flexibility to conduct further research and development
Similarly, an investor who invests in new ICOs may expect to receive the following benefits:
Getting a great deal as part of a new cryptocurrency release and then selling it for a large profit at a later date
A preferential status that grants early access to emerging solutions as well as the possibility of winning shares in the company's profits.
Being a part of an exciting project as an early supporter
How do ICO works
New ICOs are the result of a company's decision to pursue a new business or project. The publication of a whitepaper is the first step in launching this service. This paper contains information about the project as well as any other information that the company hopes can help it gain attention and, ultimately, investors. The level of detail varies between whitepapers, but you can expect to see project milestones and estimates, capital requirements, and prospects in the successful ones.
The investment is made after the investor has read the whitepaper and determined that it is worthwhile to invest in. Typically, Initial Coin Offerings are offered on the project's website. Investors typically receive new cryptocurrencies or tokens in exchange for their money. Decentralised Application (DApp) platforms, such as Ethereum, issue these tokens.
ICOs story
The first Initial Coin Offering (ICO) took place in 2013, when Mastercoin attempted to raise funds for a new digital currency. The company was able to raise $5 million for its communications protocol, which sparked a lot of interest in this innovative funding method. Ethereum's initial coin offering (ICO) in 2014 raised a whopping $18 million in just 42 days.
The number of ICOs increased slowly over the next few years, but between 2016 and 2017, over 900 pre-ICO whitepapers were released. In 2017, over $6.2 billion was collected as a result of these efforts. Only a year later, this milestone was shattered, with $7.85 billion raised through 1,200 new ICOs.
ICO versus IPO
Both of these strategies are efficient ways for companies to collect funds from a wide group of investors. A new IPO will outline the project in a prospectus, while a new ICO will produce a whitepaper.
However, there are some distinctions between the two, the first of which is control. ICOs are largely unregulated and therefore considered a riskier investment than IPOs, which are heavily supervised and scrutinized by authorities. As a result, launching an IPO is significantly more costly and time-consuming than launching an ICO. The number of investors interested in IPOs, on the other hand, is substantially higher than the ICO market.
Creating ICO
While the emphasis of this guide is on what an ICO is and how it helps companies and investors, we will look at how you can launch your own ICO briefly. The following are the key steps to take:
Define the scope of the project. Without an issue and a feasible project to solve it, no ICO can expect to be successful, let alone useful.
Ensure that the funding process is valid. Is an ICO the best way to finance your project, or should you look for angel investors, crowdsourcing, or other non-traditional funding options?
Investigate your competitors. As with any company, you must determine whether and how your project can improve. Keep in mind that you are now vying for investors rather than consumers. Investors, on the other hand, would be more readily persuaded if you can demonstrate that you can draw more profitable users than your competitors.
Ensure that everybody is following the rules. Speak with a knowledgeable person about whether or not ICOs are legal in your region. To convince investors that you are well trained and professional, make sure you follow any regulations.
Assemble the token. There's a lot to consider at this point, from how many rounds of fundraising you'll keep to what kind of incentives you'll offer to investors. Each token ICO is unique, but you'll need to answer a number of key questions, such as whether you'll hold a pre-ICO and how you'll distribute your tokens.
Make a note of it. The next step in launching an ICO is to draft a first draft of your whitepaper, which will outline all of the previous steps. Remember to be specific about the amount of money needed and the goals you want to achieve in the future.
Spread the word about your idea. You've already put in a lot of effort, but now things get even more difficult. An ICO will only be effective if it raises the required amount of money, which you can only do if investors are aware of your project. Create a visually pleasing website that details the whitepaper, as well as publicity and public relations efforts to get the word out.
Launch the initial coin offering (ICO). You should have already decided how you'll sell the project's tokens by this stage. The most critical aspect of this and subsequent stages is to adhere to the schedule as closely as possible and to be open about any changes. The last thing you want is for investors to question your company's credibility.
ICOs Legal Consideration
Most countries have yet to provide some kind of legal structure under which cryptocurrencies and, by extension, initial coin offerings (ICOs) will function legally. This is not to say that ICOs are illegal in these countries; rather, they are governed by no particular legislation. This gray area has resulted in a number of ICO scams, creating serious questions about the future of this form of fundraising. However, attempts are being made to control the market, including the implementation of KYC and AML steps similar to those used by banks and conventional exchanges.
Authorities face a challenge because ICOs are decentralized, and it can be difficult to decide which legal authority an offering falls under. Authorities are likely to set requirements for participating ICOs to be accepted when they create a legal structure. An approval from a credible body, such as the US Securities and Exchange Commission, will likely draw more investors and provide much-needed legitimacy.
How to Avoid ICO scams
Unfortunately, an unregulated and decentralized market is fertile ground for con artists and con artists. In 2018, 32,000 investors lost a total of $660 million investing in Ifan and Pincoin, making it one of the most well-known ICO scams.
Since you have no authority or financial planner to refer to, you must secure yourself and your funds on your own. Here are some safety precautions you should take:
Read the whitepaper for more information. Instead of listening to the hype surrounding a specific ICO, read the whitepaper. Check out the team to make sure the project has strong potential milestones and is attempting to solve a problem, at the very least.
FOMO should be avoided at all costs. Fear of Missing Out (FOMO) is a common investor weakness that fraudsters try to take advantage of. If an offer seems to be too good to be true, it most likely is.
Keep an eye out for accountability. Another thing to keep an eye out for is the project's code. Reputable ICOs make their code available, usually on GitHub, where it can be examined by qualified individuals.
Investing on ICOs
You may be interested in investing in an ICO once you have a good understanding of what it is. This is a fairly simple procedure to follow.
Open an account with a reputable cryptocurrency exchange after registering on the project's website.
Depending on the project's sponsored currency, exchange fiat currency for Bitcoin or Ether.
Transfer your funds from the exchange to a personal wallet.
Transfer the required funds to the project's wallet address and include your mailing address for the tokens.
Be sure all the wallets and exchanges you use are ICO-friendly before you use them.
