Everything You Need to Know About ICOs

If you're a newbie to cryptocurrency and you're wondering, "What is an ICO?", or you're a crypto veteran but want to know if a new coin launch is a good investment to put your money into, this article will show you what you need to know. Buckle up, and prepare to find all the answers you need to help you make the right crypto investment decisions. 

The cryptocurrency industry continues to grow and evolve daily. Many individuals and entities are venturing into creating new crypto coins, hoping they will also kick off the ground and soar high the way big-name coins such as Bitcoin and Ethereum did. 

Unfortunately, it's not always that easy to create and fund new coins, just like many startups. So, many people have taken to looking for investors interested in putting their money in coins that have the potential to grow in the near future. 

Initial Coin Offering (ICO) is just like what we know as IPO (Initial Public Offering), but for the cryptocurrency world. IPOs, generally describe the process of offering shares owned by a private company to the public, allowing the company to grow capital from public investors. 

Companies that need to raise capital for a coin launch or to create an app or service can launch an ICO. The strategy is becoming an increasingly popular way to generate funds to start cryptocurrency-related products or services. 

Investors who see potential in the product or service buy into an ICO and then receive the new crypto token from the company or entity with the ICO. The value of the token investors receive can differ based on the company's preference. 

Some companies offer a token that's useful for the product or service they hope to launch (utility tokens). Other companies may make the token represent a specific stake in its project or product, but not an equity stake in the company itself (security tokens).

Over the years, different ICOs have raised huge amounts of money for investors who put in their money. However, some ICOs have also turned out to be big fails or scams. Investing in an ICO may be worth it, but you should know it is highly risky.  

Here's how a coin offering works.

First, the company or entity launching the ICO creates a white paper (a document that lists exact details of how the product, system, or service they hope to launch will work). 

Next, they set up a website containing details of why the product will be useful, how it benefits the public and other details that can positively influence investors' decisions. The website can also be set up in a way that it can receive investments via cryptocurrency or fiat currency.

Let's break down these steps further below:

1. The company starts by identifying investment targets. While the general goal is for the ICO to generate money, targeting the ICO to organizations or individuals who would likely invest is a major step in the ICO trajectory. When the target investors are identified, the company pushes the relevant materials detailing the project to potential investors.
2. Now that the investors have been drawn in, the company creates the tokens representing assets on the blockchain. These tokens are fungible and tradeable, but they are not cryptocurrencies. They are simply created by modifying some existing cryptocurrencies, such as Ethereum. (Ethereum allows companies like this to create tokens by modifying some code on the blockchain platform.) 
3. Continuous promotion of the ICO campaign is also ongoing to enable the companies to attract a wider reach of investors. 
4. Lastly, when the tokens have been created, the company offers them to investors across as many rounds as they wish. When the company has raised enough funds for the project, it can proceed to launch the product or service. The investors can also use the tokens they had earlier acquired to trade or wait until the value of the tokens appreciates to earn a profit. 

ICO, IDO, and IEO: what are they, and how do they affect you as a crypto investor? Let's look at them briefly:

ICO

Like we've established, it is an Initial Coin Offering. In this technique, companies sell their tokens to the public, but the increase in scams has made many investors cautious of it. ICOs are usually conducted by the company or entity issuing the ICO, who then contact various crypto exchange platforms to their tokens. 

Usually, ICOs are not rigorously vetted by anyone, and just anyone can issue an ICO. It's also important to note that the tokens are not immediately available to investors. They have to wait for the tokens to be listed on exchange platforms. Companies involved in ICOs also need to aggressively promote the ICO to attract investors.

IDO

Unlike ICOs, IDOs are sold to the public through a decentralized exchange launchpad. Also known as Initial DEX Offering, IDOs are conducted via a decentralized exchange or IDO launchpad.

For this technique, tokens are automatically listed on the DEX, and the entire process is properly vetted to align with the DEX platform's standards. Companies running the launch don't have to wait for tokens to be listed because they're available immediately or after a brief vesting period.

Companies also can decide to leave the promotion of the IDO campaign to the DEX, or jointly market the campaign with them. IDOs are a better option because they are decentralized and offer launchpads that simplify the IDO fundraising campaign.

IEO

Initial Exchange Offering or IEO is when the project or company sells its token through a centralized exchange (CEX) platform. The CEX platforms conduct the fundraising, automatically listing the tokens on the CEX. 

This technique also has a thorough vetting procedure to verify the legitimacy of the fundraiser. However, the tokens are not available for trading immediately. The CEX platform also takes charge of promoting and marketing the IEO.

There are three main steps to investing in an ICO. Let's take a look at what you need:

1. Register

To buy coin offerings as an investor, do proper research on the ICO, read through the necessary materials, and look out for signs of fraudulent activity. Once you are sure that an ICO is legitimate, register for it to be a part of the coin launch.

You can find ICO listings on sites like CoinDesk, ICOBench, CoinMarketCap, and others. Registration practices are usually different, so follow the instructions they may provide to get it right. 

2. Prepare Your Money

You need money to fund your purchase/investment, so fiat currency or cryptocurrency can work. It's also important to have some money in your digital wallet that you'll need to make a trade. It's also important that you get on the right crypto exchange platform that the ICO is using. Ensure that the exchange you're on has the ICO token listed so you can buy it easily.

3. Buy and Store the Tokens

When you have money ready in your digital wallet, make the purchase following the ICO procedures. You will find the new tokens in your crypto wallet after the purchase. Now you can choose to store your coins safely until they appreciate or use them in exchange for what they can get. 

ICOs are quick ways for new coin launchers to generate funds for their coin launch. While they may be very good investments if the coin appreciates in the future, they are also very risky as some ICOs are scams.

Before you invest in any ICO, you must do your homework to determine how legitimate the launcher is. You can invest some amount of money in an ICO today if you think it has the potential to do well soon.