Guide to understanding Initial Coin Offering (ICO)
A complete guide to know and understand about the Initial Coin Offering
This guide will help you understand an Initial Coin Offering (ICO) and their uses in the business world. Many have the mindset that ICO’s are some form of business venture that require large teams, huge marketing budgets, and vast resources.
The trick is to identify the proper usage of these resources and how to utilize them for your advantage in the business world.
Let us first have a look at the concept of an ICO and then dig deep into the process of how one functions
What is an Initial Coin Offering or an ICO?
An Initial Coin Offering, ICO, is a concept introduced to the modern-day world targeting crowdfunding projects that deal with Blockchain technology and cryptocurrencies.
A ‘crowdsale’ is an event held with the intention of releasing a new cryptocurrency for sale in order to acquire project funding.
ICO cryptocurrencies are known as tokens, and are usually bought by investors who are eyeing new cryptocurrencies in the market to gain a profit from in the long run.
Usually tokens are bought using Ethereum.
Sometimes fiat currencies and gold are also used in these exchanges, however that’s very rare.
The company or business then gets the required capital to develop the product, while the investors gets shares through crypto tokens, which they will have full ownership of.
What makes ICO’s different from IPO’s?
For those who are new to the subject, IPO stands for Initial Public Offering, which is when the public is offered stocks of a private company.
In an IPO, the buyers of those shares sort of own the company. And there are loads of government regulations imposed on IPOs.
In an ICO, the crypto-tokens are offered to the public and do not give any ownership rights.
What these tokens actually give the buyer is sort of a power to vote on decisions in the projects done by the company, but not always, it varies from ICO to ICO.
The ICOs tokens are otherwise just usual cryptocurrencies that can be exchanged for other types of crypto, gold, or fiats.
ICOs do not have have to comply to a lot of government regulations, though there are some laws and trust related practices.
The main advantage of an ICO is the possibility to almost immediately create and prepare a launch, making the event open and ready to be invested into by anyone on a global scale.
The freedom provided by these ventures makes it possible to raise ludicrous amounts of money.
How to identify decent ICO investment opportunities?
It should be highlighted that not all businesses are suitable for an ICO campaign. There are many things to consider including time, and cost which need to be put in to yield required funds. And especially the actual need for Blockchain technology.
So how to identify a proper ICO business or a project?
The fundamental characters of an ICO are becoming more and more structured with time.
Therefore, even though there are no strict regulations, there are still standards that need to be met in order to be eligible to start an ICO campaign.
The primary need is to have a product or service that will be the outcome of this project, giving value to the community while utilizing Blockchain technology. If an ICO does not utilize Blockchain technology, then why the hell doesn’t it just do an IPO?
Investors need to make sure that the team and all of the underlying factors of an ICO are fully transparent.
What are the focus factors of an ICO launch?
The public should be given a clear picture on the problem addressed, the solution, or product being provided through the project, the team that will be handling the solution, how tokens will be deployed, and used in the future.
Furthermore, it should be revealed to the public on how the tokens will be implemented, adding in all the product specific, financial, and technical details.
These details need to be put in the ICO Whitepaper, which is pretty much a business plan.
What more can ICO crypto tokens do?
This will vary from concept and intention of the project.
Two good examples are Ethereum and Ripple.
Ethereum, is a leading Blockchain platform focused on building decentralized applications and smart contracts using Ether tokens. Which were issued by Ethereum and are used to maintain and operate these applications.
Ripple on the other, focuses on financial transactions, which can be accepted through a distributed exchange system.
What are the benefits of participating in an ICO?
The main goal of being involved in an ICO is to invest in something that is relevant and useful to the community.
The crypto-tokens are usually pegged to fixed price in relevance to U.S. dollars and Ethereum initially.
The tokens are given value based on the outcome of the product development, which is the finished product.
Then the value of the tokens might increase, meaning that investors will be able to sell the tokens at a higher price, with a significant profit margin on exchanges.
This is a win-win situation in a scenario of a successful product or service delivery, which will be beneficial for both the company investors.
What risks might investors face in an ICO?
As mentioned at the beginning, an Initial Coin Offering is regulated by the government.
The laws may differ from country to country, meaning that there can be no legal action taken if any issue arise.
An ICO is run by self-imposed rules and regulations that have been standardized with the intention of building trust and making the industry transparent.
Further the product may not be able to be completed within the given budget or allocated time frame.
This might be due to failures in planning and team management.
Also, there might not be enough investors interested on the specific ICO. Meaning that there is a risk of the ICO failing out of the box, maybe.
How to save yourself from ICO risks?
There are some terms and conditions imposed by the community with the intention of building trust among the project owners and the investors.
The following will protect investors up to some extent;
- Do your due diligence on each project that you invest in, read the whitepaper, study the team, ask for community opinions, generally to some digging around.
- Team members freeze the tokens that they get from investor funds for a specific period of time, ensuring that they don’t run away with gathered money.
How can government regulations protect you in an ICO?
The government regulations vary from region to region.
Therefore, it is best to work with countries that support cryptocurrencies and know how to deal with ICO’s.
The importance of doing ICOs within such boundaries is that the government might protect both the project and the investor through the regulations and other means.
This brings in a sense of security and reliability to the campaigns that will be funded through ICO’s.
How to identify fraudulent ICO projects?
There are lots of scam projects around the web that try to steal money from investors. These projects may not appear to be fake at first glance, but there are some red flags that should be paid attention.
Some useful hints for identifying scam ICO’s
- Unknown and anonymous project team members
- No security measures implemented upon the team to guarantee that they won’t run away
- Goals are not well defined with no vision
- Lack of trust and transparency
- No need for Blockchain tech.
All these details build up the structure of creating and managing an Initial Coin Offering.
It is not an easy task but can be rewarding given the concept and requirement that arise from the project.
It is important to remember to identify the clear-cut need of such a project before investing.
Also government stances pertaining to ICO’s are being developed, so tread lightly and be careful with where and to whom you send your funds.
Finally, beware and stay away from fraudulent projects and invest on worthy promising ICO projects, that would yield a profit.