Initial Coin Offering | What ICO Represents

ICO stands short for Initial Coin Offering. This cryptocurrency term is a way to raise capital for all sorts of crypto-related projects.

This kind of product is used by tech startups, and the number of ICOs is rising every year. In this guide, we’ll tell you more about these offerings, how they work, and why they’re important for the crypto market.

A New Way to Raise Capital

When companies need funding for their projects, they can do it in several ways. One of these ways are startups. When it comes to crypto projects, ICO are the best way forward. They’re similar to Initial Public Offerings (IPO), but strongly differ in the fact that they’re not regulated and give investors no rights.

That begs the question – why would anyone want to launch or buy ICOs? There are many ways they could be beneficial to investors, including long-term returns, and the opportunity to support teams and projects you like.

The Main Benefits of ICOs

Initial coin offerings are a great way to get in touch with the times and invest small to earn big. If it’s a project for a new cryptocurrency, you won’t spend a lot of money on it, and you have the potential to earn a good return of investment in the future. Think of it like investing in Bitcoin in 2010. If you put $50 in it over a decade ago, you’d be a millionaire now.

ICO coins also offer other benefits, like privileged access to certain services and products or revenue distribution. Finally, it’s all about support. By investing in an ICO, you’re essentially supporting projects and teams you like.

Those who issue the token will see benefits too. For example, they can count on quick access to seed funding with almost no regulatory restrictions. These funds have no loss to equity unless stated otherwise. More importantly, token issuers can experiment with decentralized models and have a ready-made userbase that’s willing to test how the service works.

The Risks of ICOs

No experimental project is without risk, and that’s true for ICOs too. First and foremost, there’s no guarantee that the project will ever take off.

ICOs are experimental, and more importantly, there’s no regulatory protection or a guaranteed return of investment.

Furthermore, you get limited transparency on the project progress. In the past, many of these projects were elaborate scams or pump-and-dump schemes, and you might get caught up in it. Many times, there’s simply not enough information about the project or the token holders, which might raise the eyebrows of high roller investors.

The History of ICOs

The first ICO was launched in 2013. It was Mastercoin, a communication protocols and digital currency. As a startup, it raised around $5 million, and set the example for other similar projects such as the Ethereum ICO.

It went a few steps up and managed to raise over $18 million. Year after year, the ICO market grew. The real big highlight happened in 2017 and 2018. In 2017, there were over 850 ICOs, while the next year over 1,200 ICOs saw the light of day.

EOS is the largest ICO to date. This decentralized app network raised over $4 billion in total. After the market explosion in 2017-2018, interests in ICO began dying down. There are rarely any right now, but we can’t say another explosion won’t happen in the future.

How do ICOs Work?

Before an ICO is revealed to the public, a company or interested party releases a Whitepaper. The whitepaper announces the goals, projects, and how much capital the ICO needs to raise. It’s a very important step of the process, with many whitepapers helping investors decide whether they invest money.

When an investor pours money in ICOs, he gets a return in cryptocurrency or the platform’s token. These tokens are acquired in exchange for fiat money or other tokens of similar kind. Most ICOs are issued on dApp platforms, with the most popular platform being Ethereum.

With ICOs, startups can raise money easily and quicker than sharing bonds or shares. However, with the market still being unregulated, it will become harder and harder in the future to raise money this way.

ICOs largely exist in a gray area, and are not classified as financial security. Until a regulatory framework is introduced, most investors will be cautious because the risks involved.

How to Identify Fakes?

Identifying fake ICOs is essential before you invest money in the project. The good news is that the so-called exit scam ICOs can be quickly identified by watch for the following signs.

• Too good to be true: does the offer sound too good to be true? It probably is. Don’t believe the hype for ludicrous returns, which is usually a red flag for such projects.
• Anonymous team and no roadmap: avoid investing in ICOs with an anonymous team and no roadmap for the startup and its goals.
• No code: if the ICO startup doesn’t share an open code on Github which can be reviewed, stay away from it. Without the code, there’s no credible project.
• Media activity: trustworthy projects hide premium PR agencies to handle their marketing. If the project has a Bitcointalk.org thread and nothing else, it’s most likely a scam.