ICO is a short form for the initial coin offerings. ICOs are incredible tools to quickly rain development funds to support new cryptocurrencies. The tokens offered during an ICO can be sold and exchanged in cryptocurrency exchanges, assuming there is enough demand for them.
Therefore, ICO is defined as a type of funding using cryptocurrencies. ICO is different than purchasing shares at a stock market because you don’t get a share of the ownership right when you invest in the new tokens. Backers purchase the new cryptocurrency with an intention to make a profit when it increases in value. It is similar to the principle of people making a profit when the share they bought at the stock market increases in value.
In the initial stage, ICO was led by companies such as Mastercoin, Ethereum, and Karmacoin. Ethereum made one of the largest ICOs in 2014 by raising a total of $ 18 million in the initial stage of 2014. They broke the record by raising 3,700 Bitcoins, equivalent to $ 2.3 million in the first 12 hours of the campaign. Kik made the first conventional ICO in September 2017, but the project was interrupted by a phishing scam through the circulation of a fake URL on social networks. Ripple sold XRP tokens worth $ 1 billion to investors in exchange for bitcoins and fiats in 2013.
Today, ICO sales have become increasingly popular with around 50 token sales being made every month. As of 2017, ICO has been growing at an accelerated pace with at least $ 2 billion in chip sales made successfully. This shows that it will not be a temporary method used by the new cryptocurrency company to raise funds, but it is here to stay for the long term.
Today, ICO’s token sale is so popular that at least some ICOs start every day. It was predicted that more than $ 4 billion in chip sales will be made this year. Genesis Vision, a company based in Russia, conducted an ICO campaign that runs from October 15, 2017, to November 15, 2017. They manage to raise a total of $ 2.3 million in the token presale.
Ethereum‘s smart contracts system has implemented the ERC20 protocol standard that sets the core rules for creating other compliant tokens which can be transacted on Ethereum’s blockchain. This allowed others to create their own tokens, compliant with the ERC20 standard that can be traded for ETH directly on Ethereum’s network.
The DAO is a notable example of successfully using Ethereum’s smart contracts. The investment company raised $100 million worth of ETH and the investors received in exchange DAO tokens allowing them to participate in the governance of the platform. Sadly, the DAO failed after it was hacked.
Ethereum’s ICO and their ERC20 protocol have outlined the latest generation of crowdfunding blockchain-based projects via Initial Coin Offerings.
It also made it very easy to invest in other ERC20 tokens. You simply transfer ETH, paste the contract in your wallet and the new tokens will show up in your account so you can use them however you please.
Obviously, not all cryptocurrencies have ERC20 tokens living on Ethereum ‘s network but pretty much any new blockchain-based project can launch an Initial Coin Offering.
When it comes to the legality of ICOs, it’s a bit of a jungle out there. In theory, tokens are sold as digital goods, not financial assets. Most jurisdictions haven’t regulated ICOs yet so assuming the founders have a seasoned lawyer on their team, the whole process should be paperless.
Even so, some jurisdictions have become aware of ICOs and are already working on regulating them in a similar manner to sales of shares and securities.
Back in December 2017, the U.S. Securities And Exchange Commission (SEC) classified ICO tokens as securities. In other words, the SEC was preparing to halt ICOs they consider to be misleading investors.
There are some cases in which the token is just a utility token. This means the owner can simply use it to access a certain network or protocol in which case they may not be defined as a financial security. Nevertheless, equity tokens whose purpose is to appreciate in value are quite close to the concept of security. Truth be told, most token purchases are made specifically for investment purposes.
Despite the efforts of regulators, ICOs are still lingering in a grey legal area and until a clearer set of regulations is imposed entrepreneurs will attempt to benefit from Initial Coin Offerings.
It’s also worth mentioning that once regulations reach a final form, the cost and effort required to comply could make ICOs less attractive compared to conventional funding options.
When a firm wants to raise money using the initial coin offering, there needs to be a plan on white paper stating the details of the project. It should outline what the project is about, what the project needs, what it aims at fulfilling completion. It should also state the money that will be needed so as to undertake the whole venture and how much pioneers will get to keep.
The plan also has to mention the kind of currency accepted and how long it intends to run the campaign. During such a campaign, the supporters and enthusiasts of the initiative will buy the cryptocoins using virtual currency or fiat. The coins are called tokens and are very similar to company shares that are sold to investors during IPOs. If the minimum funds required are not reached, then the money is refunded and the whole ICO is then considered not successful. When requirements are met within a set timeframe, the cash can be used to initiate the scheme or even complete it if it was still progressing.
The investors who take part in the project early are mainly motivated to buy crypto coins hoping that the plan will be successful and after launching they will get more value from it. There have been very successful projects of this kind in different economies and that is one main thing that motivates investors.
ICO has proven to be a revolutionized way for many companies and projects to raise money. ICO can be said as the blend of conventional methods and advanced techniques. The primary thing to consider here is that investors investing in the ICO will be 100% free of risk due to the technology used.
Till now, most of the ICO funds have been collected via Bitcoins (BTC) or Ether (ETH). While performing the ICO, the project produces a Bitcoin or Ethereum address to receive funds and then, shows it on the respective web page. The procedure is the same as opening a bank account, and then showcasing it on a particular web page to people so that they may send money.
Initial coin offering (ICO) is basically an illegal way to collect crowdfunding via various cryptocurrencies (fiat currencies in a few cases) and is functioned by cryptocurrency organizations to obtain the capital funds required to execute the project. In an ICO, a particular part of the recently issued cryptocurrency is being sold to investors in exchange for any legalized tender or any other cryptocurrency. It can be said as token sale or crowd sale that involves taking investment amount from investors and providing them with some features associated with the project to be launched.
The statistics could no longer be ignored. Most ICOs tank, and stay tanked, once the tokens get to the crypto exchanges, after the frenzy and ‘FOMO’ attending the crowdsale is over.
Most watchers keeping track of the ICO phenomenon universally agree that the trend in the last few months has been for ICOs to lose value post-crowdsale, with many buyers waiting in vain for the ‘moon’ they were promised, once the cryptocurrency hits an exchange portal.
What is however not being discussed is the principal reason why we are witnessing this phenomenon, and what participants in a crowdsale, including the rating companies most of us rely on to make a choice, must be doing wrong in picking which ICO have most value, or has the best probability of rising in value once the crowdsale is over.
While there are a lot of reasons one could legitimately proffer for the phenomenon, there is one fact that I think is probably more responsible for this than most other contending reasons: ICO token valuation and the misplaced emphasis on ‘blockchain experts’, ‘ICO advisors’ or ‘technical whizkids’ for erc20 tokens.
I have always thought the need for blockchain technical experts or ICO technical advisors is exaggerated or even outrightly misplaced when a project is judged by that criteria unless the project is actually trying to create a brand new coin concept. For most ERC20 Tokens and copycat coins, the real important consideration should be the Business Plan behind the token and the managerial antecedents and executive profiles of the Team leaders.
A cryptocurrency company that wants to raise capitals through ICO must provide a few details including project description, project purpose, the amount needed to be raised, a percentage of tokens the company will keep, types of virtual currencies accepted, and the timeframe of the ICO campaign.
Backers who are interested can email the seller and ask for more details of the project before performing a transaction.
If they successfully raise the amount for the campaign, they will carry out the scheme to complete the project. If not, they will return the money back to the backers.
ICO can be conducted to help raise funds for various types of businesses and charity organization. It has also been used as a tool by scammers to conduct frauds.
Scammers would use means to increase the ICO value temporarily and abandon the project afterward to make a quick profit. Scams happen because of the lack of regulation by the government. Just like any investment, there is a risk when coming to invest in the initial coin offering.
No statistic on the company that runs the ICO is given so it is hard to make a prediction. Backers usually would only check out data such as who will receive the collected money and the social media profile. To make a successful investment in ICO, one needs to be patient and willing to spend time to conduct research on the company.
IPOs have a very old and interesting beginning. An IPO is a concept of inviting public investment for a company when it launches public issues.
This apparently makes the company, out of the boundaries of being just a “limited” company and opens the doors of ownership and profit share for people who are not “actively” involved in the operations of the company.
These “shareholders” are mostly no decision makers and are just the equity holding individuals or companies. They are neither employed nor sponsored by the company.
They could get benefited by securing the shares for longer and could wait for the exponential growth in the cost of shares, it could, however, go in an opposite direction too if the calculations don’t go according to the plan expected.
Although both of these are different in terms of the business generation, the public participation and the probable “kinds” of people interested in either of them respectively, they have multiple traditional similarities.
There are several similarities, but significant differences too, when it comes to comparison of IPO and ICO. Historical evidence could be analyzed and studied for a better comprehension of the relativity, requirement, and longevity of the practicality of both, in today’s economic and technical world.
An ICO is the progressive era’s choice, things go fast, no big names, no brand connection, and no long-term investment plans and equally awaited returns. The option to chose an ICO certainly is quick benefit rewarding, provided you are well versed with the quality of a token’s projections and you could be certain (even the slightest ) about the future of the token’s destiny in the market. Just by giving some extra time to a so-called “geek” next door, you could learn all about it. Then you could start re-defining your fortune.
In conclusion, ICO has helped many startups to raise the funds they need for their projects. With ICO, startups can easily raise a large amount of money within a short timeframe of just a few seconds or minutes. Entrepreneurs will continue to take advantage of ICO to raise capitals until it comes under government regulation.
For now, ICOs remain an amazing way to fund new crypto-related projects and there have been multiple successful ones with more to come.
However, keep in mind everyone is launching ICOs nowadays and many of these projects are scams or lack the solid foundation they need to thrive and make it worth the investment. For this reason, you should definitely do thorough research and investigate the team and background of whatever crypto project you might want to invest in.
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