ICO’s are a fast-growing business model for financing blockchain projects. Every year the amounts spent on this new type of collective financing increase. In this article, we will explain what an ICO is and what to take into account in an initial money offer.
ICO – What does it stand for?
The term “ICO” is the abbreviation for “Initial Coin Offering”. The abbreviation represents a modification of the IPO, the “Initial Public Offering”, which is the initial public offering of a company. The IPO offers shares of existing shareholders for the first time or a capital increase on a stock exchange.
What is an OIC?
An ICO has nothing to do with an IPO. No stock of the company is sold on a stock exchange. Instead, tokens or crypto-coins are offered to those interested. In some cases, these currencies and tokens were designed specifically for collective financing, or they have little or no value.
In other cases, the coin itself is the heart of the project, and the initial supply of coins is the first opportunity to get it. Often referred to as “symbolic sale,” the sale is made through the blockchain, the decentralized peer-to-peer network of cryptocurrencies. Sales are recorded in Blockchain.
What are ICOs for?
ICO’s are mainly used for crowdfunding. In most cases, they are created to finance new blockchain projects. The development team provides a whitepaper describing the benefits and technical details of a particular cryptocurrency or blockchain. This will make them available to the community. It will then stop the initial money supply within a certain period of time.
Investors have the opportunity to invest early in the offered cryptocurrency. They speculate that, over time, the value of the acquired cryptocurrency will increase. Others just want to support the project because they like the idea. The currency offered is often exchanged for Ethereum or Bitcoin. The success of the Initial Coin Offering in US Dollars is measured by the value of Ether and Bitcoin at the time of sale.
While most blockchain projects financed themselves through an initial supply of currencies, this crowdfunding method is also becoming increasingly popular among joint ventures. Compared to a traditional IPO, regulation is not an obstacle. A lot of times, big corporations have to prepare for a long IPO. However, since cryptocurrencies are not company shares, these regulations do not apply.
ICO’s also allow small and emerging startups to finance themselves. And you can also turn to the community. You do not need to know about the stock exchanges to attend a symbolic sale.
However, from the buyer’s point of view, there is a much greater risk. False WhitePapers have been created by unknown developers several times. After that, the developers disappear with their revenues, the later development of the project does not occur and the investors are left with a worthless currency. There are many tokens that have little or no use but are still offered. Investor protection is not guaranteed.
As a result, efforts are currently being made to create sites in which ICO’s crypto-coins are regulated while maintaining a compelling crowdfunding model in the other. Switzerland is the leader in this area. In 2017, four of the 15 largest token sales in the world happened in Switzerland. These four companies received a total of $ 631 million. They are the financial technology company Tezos, the Bancor online trading center, the status of the notification service and the venture capital company The Dao.
How can I buy cryptocurrencies or tokens in an ICO?
The conditions of an ICO depend heavily on the project operator. It is often necessary to have Bitcoin or Ethereum as equity. Both coins can be stored in a hardware wallet or software portfolio. Likewise, the coins need a wallet in which they can be stored. In some cases, payment via PayPal is possible. As a general rule, the project developer provides the information to which address the coins should be sent.
There is a difference between tokens and cryptocurrencies. A cryptocurrency is a digital currency that can also function as a means of payment. Behind a cryptocurrency is always a separate infrastructure of blockchains, nodes, and miners.
Many tokens are based on Ethereum. Without the Ethereum Blockchain, they could not exist because they do not have their own infrastructure. The functions of a token are also limited. Some of them offer benefits or services on a platform. Other tokens were created just for symbolic sale to eventually finance the project with the sale. There are even tokens that perform an action-like function and give the owner voting rights to the project.
Both terms are often used interchangeably, but you should pay close attention to the possibility of buying a cryptocurrency or a token. Ultimately, they perform different functions.
How do I analyze or classify an ICO?
One of the most important aspects of an ICO is the whitepaper. It is important to not just buy hyped coins. Read the content of the Whitepaper, the objectives and what problems they want to solve. Is the project promising? Is there a need for what the project will deliver? Success and failure may depend on it.
The team should be examined more closely. What experiences do team members have? Do they have profiles on social networks and LinkedIn? What was the team’s previous work like? Can we detect dubious machinations among project leaders? A great advantage is when team members have worked on cryptocurrencies before.
Check the marketing and team presence in social media. How many followers does the project have on Twitter, how many members are in their subreddit? Behind many successful projects is ultimately a loyal fan base and a strong community. The support of large companies in the technological or financial sector is also a good indication of the success of the company.
The roadmap is also important. It should be carefully observed whether the team is able to achieve the goals set in the project planning. This gives you an idea about whether the goals are realistic and the team is able to achieve the intended goals. If there is no Roadmap, it is better to drop the project.