After the massive bull run of Dec 2017, a new trend come in the crypto market Initial Coin Offering (ICO). Many crypto projects used the method ICO to raise funds for the development of the project.
ICOs have raised a total of $5.6 Billion in 2017, that sounds amazing. The funds raised by ICOs increased to $7.8 Billion in 2018 that was a 140% increment from 2017. In this post we will explore the term ICO (Initial Coin Offering) and What is ICO?
1 What is ICO (Initial Coin Offering)?
ICO (Initial Coin Offering) is the way to raise funds to distribute their native crypto tokens. Imagine, you want to start a startup with a great idea with the blockchain ecosystem, you need some initial investment for the development of the project. So you can decide to launch an ICO in which you sell your tokens for Bitcoin (BTC), Ethereum (Used in Most of the ICOs) and other popular cryptocurrencies.
ICO is an easy way to raise funds than Banks and venture capitalists investors. ICO publishes a technical document that has all the information about the project and future plan known as a whitepaper. Investors carefully study the whitepaper and if found legit will invest in the project.
Some people compare ICO with an IPO but there is some basic difference between both.
- In ICO the firm only sell tokens not shares of the company
- The ICO must be related to some Blockchain development
2 History of ICOs
ICOs are here in Bitcoin space since 2013 but was famous after the ICO of Ethereum (the second largest cryptocurrency by marketcap) which raised $18.4 million.
Ethereum (ETH) ico is the most profitable ico to date. The ICO price was $0.35= 1 ETH coin. The return on investment (ROI) of ETH ICO is more than 700x at the current price ($250).
Ripple may be the first ICO in cryptocurrency history. Ripple Labs distribute 100 Billion XRP tokens in early 2013. The core project of Ripple is fast and secure payment settlements across borders. Ripple Native token XRP is used by many big banks to settle payments.
EOS Initial Coin Offering (ICO) was the biggest public ICO yet. EOS has raised $4.1 Billion in the public sale. EOS token is backed by the crypto firm Block.one, the EOS project was launched by the firm back in June 2017.
3 What is ICO Token?
The startup firm sells tokens to raise funds via ICO (Initial Coin Offering). The startup will not sell any shares to the customers instead they give them the company native cryptocurrency tokens.
Investors need to lock the tokens for some time (announced before ICO). Investors can use the tokens for future buying and selling services that are connected to the company or just simply sell the token at higher prices and convert the tokens into Bitcoin or Ethereum.
4 How to Participate in ICO?
If you are looking to participate in an ICO sale, there are some necessary things you should do.
- First, check the ICO website is there any achievement or announcement by the company that have no proof to back
- Check the team profile and verify them on various platforms
- Read the Full Whitepaper before investing a single penny
- Check whether the project is feasible or only in air talks
- Join the social channels and ask all questions about the team and project
Generally, most of the ICOs are ERC-20 tokens (Ethereum blockchain based tokens). In the early days of ICOs, only Ethereum (ETH) is accepted in the sale, but now ICOs accepts popular cryptocurrencies like Bitcoin, Ethereum, EOS, Binance Coin (BNB), Litecoin.
To participate in an ICO sale just go to the website and check is there any KYC required or not if verification is necessary, provide the documents and ready for the sale day. You need to send funds to the startup smart contract address (ETH smart contracts mostly).
5 Another question arises in an investor mind is that are ICOs legal?
ICO (Initial Coin Offering) is maybe legal. The concept is very new and needs deep research and regulations. SEC (Securities and Exchange Commission) says that ICOs are not classified as financial security.
There are many startup companies that are launching their cryptocurrency tokens and claims to solve the problems that are not existing. Many projects sell tokens and never listed on the exchanges and users only left with some ETH smart contract numbers (tokens) that have no use.
6 Advantages of Investing In ICO
- Easy to participate in the token sale
- Less paperwork required
- Tokens are directly sent into your wallet (maybe locked for some time)
- A chance to become an early investor in the next potential project like (ETH, NEO, EOS)
- Massive returns in a short time period
7 Disadvantages of Investing In ICO
- Capital is at Risk
- Token price may fall heavily
- Company has not a feasible project
- The token is not listed on any exchange
- No interest from the crypto community
- The team leave the project behind
8 Initial Coin Offering (ICO) is outdated
The ICO trend is now outdated and a new way to raise money for the projects has come into the market. Initial Exchange Offering (IEO) is the new trend of 2019. Almost all exchanges introducing IEO crowd sales. An Initial Exchange Offering is very similar to Initial Coin Offering except for one thing the project funds are raised by the exchange and the tokens will be listed on the exchange after the crowd sale.
Leading cryptocurrency exchanges (Binance, Huobi, OkEx, Bittrex, Kucoin) have different platforms to introduce IEO to their users. Binance IEO platform is Binance launchpad, Kucoin IEO platform is Spotlight. Read all about Initial Exchange Offering (IEO) Here.
9 Final Thoughts
ICOs is one of the most talking topics in the crypto community. It is interesting to see how ICOs works when legal regulations are more strict. Hope the new regulations will help to flash out the scammy projects from the Bitcoin Space. Please make sure you do research before investing any money in ICO. The cryptocurrency market is known as high risk and high reward market. Do whatever you want to do after all it’s your money 🙂
Disclaimer: Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Bitcoinik or the writer to invest in cryptocurrencies or other ICOs.