The modern world does not stand still, developing according to constantly changing requirements and needs of people. New technologies are emerging, old ones are being improved, and unique products and services are being created that seemed to us to be cosmic just a few years ago. Refrigerators with Internet access, sneakers, sneakers that count steps and calories, cars with artificial intelligence, robots, dentists, virtual reality, cryptocurrencies, blockchains, digital economy. And this “space” is already a part of modern life. Let’s continue to immerse ourselves in the virtual world, namely blockchain technology, on the basis of which innovative, amazing and cosmic products are created. In this article we will tell you what lies behind the mysterious abbreviation ICO and what place this development occupies in the current market of cryptocurrency systems.
What is an ICO and how does it work?
ICO, or Initial Coin Offering (primary placement of tokens) – is the release of the company’s own virtual coins (tokens) and their subsequent exchange for other cryptocurrencies or fiat money to attract investment. Actually ICO is one more form of crowdfunding model (collective financing) at which participants are put in company development now to receive profit in the future. The concept of ICO is directly related to blockchain technology, which is a distributed registry. After all, one of the main paradigms of blockchain creation and application is the clear, reliable and secure functioning of virtual currency.
The cryptocurrency of ICO is tokens. Tokens are released by adding transactions to blockchains with their number, description and assignment of a unique ID. Each token placed in the ICO corresponds to an indestructible account in the distributed account so that they can be easily exchanged. After release, tokens can be sent to any wallet in the blockchain system. ICO is implemented in the form of token preissuance and distribution to the interested public(s). Buyers of tokens thus finance new projects and start-ups in the hope that these investments will bring them profit in the future. In 2017, compared to last year, the number of ICOs almost doubled, which indicates the progressivity of this development based on blockchain and its importance for the development of the cryptocurrency market. Despite the fact that ICO, as an unconventional method of investment, has not yet been regulated by the state, we advise you to take a closer look at it. Because it is an alternative way to attract investment for the launch or development of a project, which has many advantages over expensive traditional financing processes. Generally speaking, ICO is a new way of fast financing, thanks to which it is possible to invest funds now and withdraw fat cream in the near future.
ICO Vs IPO: Key Differences
The initial analogue of ICO is IPO (Initial Public Offering). As well as in IPO, investors invest funds and receive a certain “share” in the company, but not in the form of real shares, but cryptographic shares or cryptographic tokens. So, ICO vs IPO. Let’s consider the main differences between the sale of tokens and the public sale of shares:
- Costs. ICO – 10 times cheaper than the IPO (to launch and enter the stock exchange cryptocurrency needs $10-20 thousand, while the minimum cost of IPO – $200 thousand)
- Return on investment. Investments in ICO are returned in 1-5 years, in IPO – at least 7-10 years.
- Control and supervision of the state. IPO is regulated by national legislation, ICO today – no. Here an escrow (authoritative people or companies) comes into play.
- Legal status. When buying tokens, investors are not insured and do not receive any guarantees and legal rights, while the acquisition of shares is a legal generally accepted form of ownership.
In short, ICO is an easier and faster process of attracting investments, but at the same time more risky. But it is not in vain that they say “Who does not take risks…”
Why should I invest in ICO?
What is the most important thing for investors? That’s right – making a profit. Before they invest, they carefully study the subject of financing. After all, their goal is to make savings and thus increase their financial assets. So, why do investors buy tokens?
- Earn. Buy tokens now and resell them on more favorable terms in the future (if the project “shoots”). An inspiring example is the story of the Ethereum cryptocurrency, whose tokens cost less than one cent per unit in 2014, and now $400.
- Get favorable conditions. Invest in ICO now and use tokens in the future, using them for direct use, receiving services at a lower price.
- Personal interest. To support an interesting project, thus supporting the financial benefit with emotional satisfaction.
ICO Investing Beginner’s Guide 2020
Suppose you have money, the desire and interest to invest in ICO. But you do not know how to find a promising ICO project that will allow you to earn and get the maximum benefit. Don’t worry, today there are a lot of information resources where you can find investment attractive ICO-projects (Smith & Crown, ICO Alert and others). Also in the near future it is planned to launch a new specialized platform for ICO – Coinlist, which will help investors to identify a worthwhile project for earning. So, you have found a promising project and are ready to start. The first thing you need to do is to start an electronic wallet with bitcoins, esters or any other cryptocurrency you need. You can do this, for example, here.
The second important condition is to be able to correctly conduct transactions on the Internet and possess certain knowledge about the functioning of cryptocurrencies (read our previous articles for this purpose). And the third is to go to the ICO-project website and, following the instructions, start investing. Everyone can present themselves at ICO, no matter if it is a project of a well-known international company or a startup group of enthusiasts. But it is important to understand that it is not a thankless thing to predict the success or failure of a project either in the first or in the second case. ICO has a classical principle of “luck”, i.e. a huge multiple income or a complete failure.
What to pay attention to before participating in ico?
As you already know, there are no laws in the world that regulate the behavior of ICO projects. But their number is constantly growing. The abundance of projects, as well as their lack of legal status can confuse even the most experienced investors. Not to mention newcomers.
Therefore, before participating in any ICO-project we advise:
- Take the time and carefully study the agreement on sale (Token Sale Agreement), reading it “from and to”, because the organizers may not publicly announce all the details of the project, but to reflect them in the contract.
- All necessary agreements and rules of ICO-project should be published on the website and presented in the form of a public offer, which details the terms of the agreement. Read the document from cover to cover – and in no other way.
- Availability of a ready working prototype is another must have.
- It is important to assess the degree of development of the legal side of the ICO-project. Competent and correct white paper, which describes in detail the technical side of the platform and provides economic feasibility of the project with references to official sources.
- The site should provide detailed information about the people behind the project. The team is one of the key factors directly affecting the success of the project. Therefore, we advise you to pay attention to the fact that the developers should have experience in this area and an untainted reputation.
- Another important factor is the presence of escrow. Escrow is the conditional deposit (transfer for storage) of the sum of money at the third party acting as the intermediary of the transaction and the guarantor of its transparency. Sometimes projects are supported by several escrow at once. And their absence, most likely, speaks about fraudulent intentions of organizers.
- You can also see how the organizers of the ICO-project interact with the audience. And for this purpose to join the discussion of the project at some popular forum (for example, Bitcoin Talk), where more advanced users give separate comments and share experience.
So, in a conscientious ICO-project between the organizers and potential investors an open dialogue is conducted, plans for the launch and implementation of the project, the prospects for its development and principles of work are discussed. Remember, it is necessary to invest wisely.
How To Launch An ICO, A Detailed Guide
First, note that the mechanism of ICO-project functioning directly depends on the type of tokens. There are tokens
-applications and tokens-actions. Their difference is the presence/absence of the source code of the company.
1. Application tokens, if the company has source code. Application tokens or AppCoins are a form of digital currency that allows users to access the services of a decentralized (distributed) network. That is, investors do not have any property rights, only the possibility to use the services. It is like a subway token: you have purchased it and can use the services of the subway. That’s all.
Application tokens function on the blockchain network, so they are freely bought and sold for any cryptocurrency. They can be earned by creating value on the appropriate blockchain network. You can do mining, you can be active on social networks (likes, comments, reposting), or you can create popular and popular content.
The scheme of work with application tokens is called the Nakamoto business model (Satoshi Nakamoto, the creator of Bitcoin) and is implemented through the following actions of the team:
- Publication of a white paper with a description of the project and development plans, as well as the placement of basic technical information on top forums of cryptocurrency investors, such as Bitcoin Talk.
- Official announcement of the ICO launch and publication of the source code before the generation of the first token.
- Creation of application tokens by means of mining.Often, some tokens are left to the founders of the ICO project.
- Promotion of ICO-project by means of different advertising mechanics, as well as selling tokens to all interested parties (tokens can be sold for any currency, which will be set by the founding company: dollars / euros, any cryptocurrency or a mixture of real and digital money.
- Then the team makes every effort to ensure that the project was successfully developed as planned and, thus, increased demand for user tokens (and with it and their cost).
2. Promotional tokens if the company has NO source code. Share tokens are similar in functionality to bonds and shares, which are used in the company’s traditional entry into the market. They are used to build and develop the network itself and to finance developments for its successful operation. No tokens are needed to access the company’s services.
They give investors the right to receive dividends in the form of a percentage of the company’s income or some part of the fees for transactions carried out in the network. Often tokens are shares in DAO (a new business model consisting of a set of autonomous applications, which are able to solve the tasks of the organization without human involvement). Holders of token shares have the right to make business proposals and vote on investment proposals of companies.
The more shares an investor owns, the greater his or her share of the vote. The sequence of actions of the team when working with token shares:
- Publication of white paper with project description and development plans, as well as placement of basic technical information on top forums of cryptocurrency investors (Bitcoin Talk).
- Creation of a smart contract (a digital contract controlled by a computer algorithm) with a number of tokens, which are reserved for the project founders.
- Formation of a provider company, which will be engaged in network development.
- Promotion and promotion of ICO-project by means of different advertising mechanics, as well as sale of tokens to all interested parties. The money earned from the sale is used to reward the team-provider.
- Expansion of the network, receipt of dividends for the use of the network and their distribution. There are also credit tokens, when the network takes a loan for a short period of time in return for interest income from the loan amount.
At the moment, credit tokens are not used as a separate type of payment unit, but only in combination with tokens applications or share tokens. Steemit is considered to be the first network to start using credit tokens (Steem Dollar – SD). It is noteworthy that the company has the ability to choose the combination of tokens independently. It can work only with one type (application tokens/promotional tokens) or mix them as it sees fit. However, all this should be recorded in the White Paper and conditions of a specific ICO-project.
ICO is legal?
Now, in 2017, there is no legal framework governing the production and sale of cryptotoxins. However, this does not mean that ICO is an illegal way of attracting investments into the project. The legal status of the project, the procedure of its implementation and the requirements to the companies-organizers have not been clearly defined yet. In fact, all cryptocurrency activity is more informal and takes place in the so-called legal vacuum. After all, cryptocurrencies still have no official status of a monetary unit in almost all countries of the world. But blockchain technology is rapidly developing, and ICO, created on its basis, attracts more and more attention.
Yes, this development does not yet have a quality infrastructure for investors, and the legal nature of relations between participants remains rather blurred. However, despite all possible risks, ICO continues to invest a lot of money. And the lack of a legal framework is more of a question of the legal industry, which does not keep up with the technologies. At this stage, ICO is like the Wild West in the financial world. There is still a lot to be done to bring it into a civilized form, to formalize it legally, to create a clear infrastructure and reap the benefits of its use. But with a competent approach and careful work ICO can be an ideal tool to attract funding for blockchain projects.
EXAMPLE OF SUSTAINABLE ICO
Now there are several dozen projects using a business model based on tokens. Many of them are either preparing for pre-sales or have already successfully completed them. And judging by the dynamic development of the cryptocurrency market, many new projects will join them in the near future. So the potential investor has a lot to choose from. And one can be inspired by the stories of success of the loudest ICOs. Since the concept of success in the context of ICO is rather conventional, the success of an ICO project is judged by the amount of funds raised. If we take only statistical data, in this regard, the first place belongs to the project Bancor, which in June this year, in three hours, collected more than $ 140 million.
Lightning fast success can be boasted and the team that launched the innovative browser Brave: it managed to achieve its goal and raise $ 35 million in 30 seconds. In May 2017, Storj (raised $30 million in less than a week) and Aragon (the planned $25 was raised 15 minutes after the start of sales) “shot” the project. And in May 2016, the project The DAO (Decentralized Autonomus Organization), based on Ethereum technology, which has already become a part of the cryptocurrency history, rang up. However, hackers cracked the DAO code and stole about $40 million from the organization’s account.
Ethereum programmers returned most of the money, but this did not save the organization from collapse. Dissatisfied users came out of the project and launched their own currency based on Ethereum. This is how Ethereum Classic appeared. Speaking about successful ICO-campaigns, it is necessary to note, as in 2014 during the project Ethereum one of the most known and popular cryptocurrencies – Ethers (ETH, esters) has been issued in circulation. When ICO was launched, the esters cost less than one cent per unit, and today users pay more than $200 per unit of currency. In general, the history of ICO dates back to 2013, when the first cryptotoxins, Mastercoin, were launched.
ICO became one of the first real mechanisms of blockchain technology application by business. ICO makes it possible to launch a project without extra costs and lengthy negotiations with investors. They also solve a very acute problem of financing deficit, which is regularly faced by startups and private companies around the world. What happens next? Will we see ICO’s passion and read about new record-breaking projects or see the market collapse? It’s hard to say. But we advise you to keep an eye on the ICO market and be on the crest of the cryptocurrency wave. After all, events in this area are developing very quickly, new opportunities appear almost every day. And it’s stupid not to use them.