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.
What Is an ICO?
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.
How Does an ICO Work?
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:
- 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.
- 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.)
- Continuous promotion of the ICO campaign is also ongoing to enable the companies to attract a wider reach of investors.
- 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.
Who Launches an ICO?
Anybody can launch an ICO. The procedure undergoes very little regulation currently, so as long as you have the appropriate technology, you can launch an ICO.
There are, however, some challenges with this. One major one is that the very limited amount of regulation makes it easy for swindlers, scammers, and frauds to get away with a lot of money by making people believe their ICO is legit.
ICOs are very easy to set up as scams, so investors need to be extremely careful to ensure they're not putting their money into a sham. You must do your homework to find out how legitimate an ICO is by looking to see how accountable or real they are.
Look out for their history and how experienced they are with crypto and blockchain. Don't be taken in by fancy websites and brochures that can fool anyone. Instead, go the extra mile to find verifiable evidence that they are who they claim to be.
If it's almost impossible to find their presence or existence on crypto-related issues, that's a big warning sign. There have been cases where celebrities have been known to encourage fans to invest in some ICOs, which eventually turned out to be scams.
So, when dealing with ICOs, you must know that not all of them may be what they claim to be. Regardless of who is promoting it.
ICO vs IDO vs IEO
ICO, IDO, and IEO: what are they, and how do they affect you as a crypto investor? Let's look at them briefly:
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.
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.
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.
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How to invest in an ICO
There are three main steps to investing in an ICO. Let's take a look at what you need:
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.
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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.
ICO stands for Initial Coin Offering, a capital-raising project in the crypto world that enables new coin launchers to generate funds for their new coin launch.
An ICO is an Initial Coin Offering that works like an IPO (Initial Public Offering.) The company or entity creates a fundraising campaign where interested investors can invest money until the company generates enough funds to launch its new crypto coin.
ICOs, generally are unregulated. In the US, there are no regulations that directly apply to ICOs. If, however, they fit into the securities offering class, it becomes regulated by federal securities law. Some other countries have banned ICOs completely. Countries like China, Bangladesh, Ecuador, etc.
A lot of ICOs have been successful, helping investors generate a lot of returns from their investments. However, there have also been a few that have turned out to be, unfortunately, unsuccessful, with the investors losing money to frauds or the coins failing to appreciate.
Bitcoin is not an ICO. Bitcoin is a cryptocurrency that has been in existence since 2008. It is currently the largest and most popular cryptocurrency on the market. Since ICOs represent coins that are yet to be launched on a blockchain platform, Bitcoin cannot be an ICO.