Currently, there are a plethora of options for attracting project investment. New ones emerge as technology advances. The rapid growth of blockchain technology and cryptocurrencies ushered in a new form of attracting investment: the Initial Coin Offering (ICO).
Initial Coin Offerings (ICOs) are a relatively simple way for blockchain project developers to raise funds; for investors, it's a lucrative (albeit risky) investment tool.
ICO
What does the acronym ICO stand for? An Initial Coin Offering (ICO) is a form of investment attraction that arose as a result of the emergence of cryptocurrencies and is commonly used by blockchain startups. It entails selling a predetermined number of cryptocurrency tokens to buyers. The term comes from the financial term IPO, which stands for Initial Public Offering of Shares. Unlike IPOs, however, ICO investors do not have the same rights as shareholders. Participating in an ICO, in particular, does not entitle the investor to a share of the firm issuing the sale.
The project team sells digital tokens to investors in exchange for cryptocurrencies (usually Bitcoin or Ethereum) or, in rare cases, fiat currency throughout the ICO. These tokens can then be used as an internal currency on the project website or exchanged on cryptocurrency exchanges.
The first ICO, which raised over $5 million for the Mastercoin project in 2013, was one of the most recent fundraising methods. Ethereum, which raised $18.5 million in 2014 and has since produced millions of dollars in profit for its investors, is the most profitable ICO to date.
Whitepaper
A white paper is a text that details the project in great detail. In general, it provides a summary of the project's technological aspects, financial model, development roadmap, development team, and more, in addition to a general description of the project. For projects undertaking an ICO, the presence of a white paper is a kind of norm. It's a marketing tool, in certain respects, to entice potential investors and persuade them of the project's seriousness and potential.
Initial Coin Offering (ICO): how does it work?
ICOs are usually carried out in the following manner:
Developers come up with a product concept that typically involves blockchain technology.
Online magazines, social media networks, and forums are used by the developers to publicise their project. The project is generally just an idea at this stage. Following that, the developers assess the degree of interest in the project among investors.
The developers build a public ICO that outlines the contract's most relevant terms in detail. In order to make the deal, they have establish a legal entity.
Following the posting of the bid on the project's website, a marketing campaign to draw investors begins.
Investors purchase project tokens, which are usually sold on the project's website. Furthermore, developers try to get their token listed on a crypto exchange at this or a later stage of the ICO.
The project developers work on the project according to the roadmap after attracting the necessary amount of investment.
Pre-ICO
A pre-ICO (also known as a pre-sale) is a stage of raising funds for a project prior to the ICO's official launch. The token price is at its lowest during the pre-ICO era, while the risk to investors is at its highest.
Checking a Good ICO
Investing in an initial coin offering (ICO) is a highly lucrative — but often highly risky — type of investment. You should first perform a preliminary review of the ICO to reduce the risk of losing capital. Pay special attention to the following aspects of the ICO you're considering:
The project's squad. Learn as much as you can about the project's developers, especially about the team's background, which projects they've worked on previously, and in what capacities.
Whitepaper. Examine the project's white paper extensively. Projects without this guide should be avoided at all costs. After reading the white paper, you should have a better understanding of the project's prospects, characteristics, and benefits that set it apart from other projects, among other items. Clear terminology, precise wording, and an appealing, easy-to-understand business model are all positive indicators. A project that seeks to tackle a particular business problem would have a higher chance of succeeding.
Road map. A successful project roadmap should outline the phases of funding, including how the project intends to invest the funds raised, the timeline for each stage, and evidence of the feasibility and prospects of its chosen objectives.
Legal standing (including an officially registered legal entity). Make sure there aren't any legal issues with the project.
Social media and community. Investigate the big discussion boards to find out what the average investor feels about the idea. Find out how the project is being covered by the media.
Code quality is important. The majority of cryptocurrency projects are free and open-source. You should try to evaluate the project code yourself if you have programming experience. The quality of the code will provide an indication of the developers' abilities and how seriously they are taking the project.
Tokens are listed on the exchange. If a token is set to be listed soon, particularly on a major crypto exchange, it's a good sign.
Participants in an initial coin offering (ICO). If any major investors have confirmed their involvement in the ICO, it will be useful to know.
Thoughts
Keep in mind that investing in initial coin offerings (ICOs) is extremely risky. Only put money into investments that you can afford to lose.
