The ICO industry has been absolutely booming over the course of the last year. Media outlets, Facebook, Twitter, literally everything is covering ICO’s. But a lot of people are confused as to what they are. What their purpose is, and who is investing in Initial Coin Offerings.
Let us at Cryptona answer all of your questions.
When did ICO’s first kick off?
Back in 2013 actually. The first ICO ever was Mastercoin. It was a project built on bitcoin Blockchain technology. The project only managed to raise about half a million. A few other ICO’s followed after. However, Ethereum stands out the most among the rest, raising over $250 million. Then we had the Decentralized Autonomous Organization, or DAO for short. Which managed to raise about two-thirds of the amount that Ethereum did.
Things went wild after the public caught wind of digital projects raising obscene amounts of money. Millions of dollars could be raised in just a few hours, even minutes. Government entities were starting to get interested. Average internet users started becoming curious. Could they make a fortune by helping a prospective project?
How many ICO’s have there been already?
Hundreds, some aren’t nearly as snazzy as Ethereum. But still, hundreds! The amount of money that ICO’s have managed to raise already outnumbers VC funding! That’s over a billion dollars. Expect that number to grow exponentially.
But why not just go with an Initial Public Offering?
Well, because ICO’s don’t have to jump through as many bureaucratic loopholes and regulations. Teams or companies that launch ICO’s sell shares (tokens) of their project to investors directly. Which helps the project’s ecosystem expand at a dramatic rate. Maximizing development potential at a much greater rate than through traditional IPO’s. Essentially, investors and project teams go through a viral effect tailored towards providing monetary gains and incentives for all individuals involved.
ICO’s and crowd sales are pretty much the same thing.
But, how do ICO’s actually work?
The first step is to come up with an idea for a product or service that could be built on Blockchain technology. Your project needs to have room for cryptocurrency/token functionality. Otherwise, there’s no point for anyone to support it since you actually don’t need to build on Blockchain technology in that case.
So, you get a team together, figure out how things are gonna function, work on technical goals, draft a business plan (Whitepaper). Let loose some roots on social media, like Facebook, Twitter, Reddit, Telegram, Bitcointalk, pretty much announcing your desire to hold an ICO, token sale, crowd sale, whatever you want to call it.
You set a date for your ICO, figure out token prices, issuance, distribution, use.
Do you need like… a digital wallet?
Well, tokens are usually distributed by means of a smart contract. But, yeah, you need a wallet that you will use to probably send Ethereum to the contract address of the ICO that you are investing in. In return, you will get project tokens.
Once the company holding the ICO gathers all of the funds it needs, the token sale comes to an end and development can kick into full gear.
How do companies know how much to charge for their tokens?
Generally, a company carries out some market analytics to figure out how much the public would be willing to pay for their token. A lot of teams simply seek out the assistance of professional advisors. Or they can just assign a price themselves and quantify it somehow. But in the end, the demand and price for a token depend on its usefulness and functionality within the project’s ecosystem.
But, investors need to understand that they are supporting the company without it really giving them any guarantees. If the company pulls through on its project plans, then the price of its tokens might go up radically. That is if there is a limited amount of them available.
By the way, tokens are always usually bought with cryptocurrencies. Though, some projects do allow for them to be purchased with fiats.
Why don’t ICO’s just raise money with fiats?
Because when you use fiat money and bank notes for investment purpose you are dancing on the thin line of regulated banking and government laws. But, cryptocurrencies don’t really fall under a lot of government regulations. So, the industry is quite free.
But aren’t regulators already cracking down on ICO’s?
Yeah, the United States SEC requires ICO tokens that are security tokens to comply with its governmental laws. South Korea barred Korean citizens from hosting or participating in ICO’s. China has put out limitations too. Other countries have put out statements warning investors about the risks of ICO’s.
You have to understand that ICO’s aren’t concentrated in one place too. They are a global phenomenon.
But, most ICO’s are focused on Blockchain technology of course. With the goal in mind being how they can advance the ecosystem in the world’s best interest.
ICO’s are still in their early stages. So, the technology will continue on developing and more regulations will definitely come.
How and can people sell the tokens that they acquired during an ICO?
Of course! Once the ICO is done, investors can easily sell their tokens on popular exchanges that list them. Like Bittrex, Binance, HitBTC. Tokens can be sold pretty much right after the ICO is done. However, keep in mind that early bird investors might take advantage of their received discounts and drop their tokens on exchanges.
Is there a bubble building up in the cryptocurrency industry?
The industry is just growing at an alarming rate. I would be worried about it if all of the projects were technically weak and didn’t address and attempt to resolve some serious issues. However, that’s not the case currently. A lot of ICO’s have great potential. The industry is growing, and in my opinion, it will continue to grow and prosper at an alarming rate. Hopefully, some smart regulations will kick in and make it more secure for investors.
Though keep in mind that a lot of scam ICO’s do exist, and it might be dangerous to point them out. So, investors, do your own research and be smart with the assets that you invest. Remember that it’s always better to go and invest in an established company that has proven its worth and capabilities.