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ICO is a rapidly growing business model for funding blockchain projects. The amounts spent on this new type of collective funding increase every year. In this article, we will explain that what is an ICO and what to take into account in the initial money supply.
ICO – What does this mean?
The term "ICO" is the abbreviation of "Initial Coin Offering". The abbreviation represents a change to the IPO, the "Initial Public Offering", which is the initial public offering of a company. The IPO offers for the first time shares of existing shareholders or a capital increase in a stock exchange.
What is an OIC?
An ICO has nothing to do with an IPO. No shares of the company are sold on the stock exchange. Instead, token or crypto-coins are offered to those interested. In some cases, these currencies and tokens have been designed specifically for collective financing, or have little or no value.
In other cases, the currency itself is the heart of the project and the initial supply of coins is the first opportunity to obtain it. Often referred to as a "symbolic sale", the sale takes place through the blockchain, the decentralized peer-to-peer network of cryptocurrencies. Sales are recorded in Blockchain.
What are ICOs for?
ICOs are mainly used for crowdfunding. In most cases, they are created to finance new blockchain projects. The development team provides a whitepaper that describes the advantages and technical details of a particular cryptocurrency or blockchain. This will make them available to the community. Later, it will stop the initial money supply within a certain period of time.
Investors have the opportunity to invest early in the cryptocurrency offer. They hypothesize 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 with Ethereum or Bitcoin. The success of the initial offer of currency in US dollars is measured by the value of Ether and Bitcoin at the time of sale.
While most blockchain projects were financed through an initial offer of currencies, this crowdfunding method is becoming increasingly popular among joint ventures. Compared to a traditional IPO, regulation is not an obstacle. A lot of times, big companies have to prepare for a long IPO. However, since cryptocurrencies are not company shares, these rules do not apply.
ICO also allow small and emerging startups to self-finance. And you can also contact the community. It is not necessary to know the grants to participate in a symbolic sale.
However, from the buyer's point of view, there is a much greater risk. The false WhitePapers were created several times by unknown developers. After that, the developers disappear with their revenue, the subsequent development of the project does not occur and investors are left with a valueless 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 underway to create sites where ICO's cryptocurrencies are regulated by maintaining a convincing crowdfunding model in the other. Switzerland is the leader in this sector. In 2017, four out of the 15 largest token sales in the world took place 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 purchase 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 portfolio or in a software portfolio. Likewise, 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 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 there is always a separate infrastructure of blockchain, 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 advantages or services on a platform. Other tokens were created only for the symbolic sale to finance the project with the sale. There are also tokens that perform a function similar to an & # 39; action and give the owner the voting rights on the project.
Both terms are often used interchangeably, but you need to pay close attention to the possibility of buying a cryptocurrency or a token. In the end, they perform different functions.
How do I analyze or classify an ICO?
One of the most important aspects of an ICO is the white paper. It is important not only to buy coins to be thrown away. Read the content of the Whitepaper, the objectives and the problems that they want to solve. Is the project promising? C & # 39; is it necessary for what the project will deliver? Success and failure can depend on this.
The team should be examined more closely. What experiences do team members have? Do they have profiles on social networks and LinkedIn? How was the previous work of the team? Can we detect questionable machinations among the project leaders? A big advantage is when team members worked on cryptocurrencies first.
Check marketing and team presence in social media. How many followers does the project have on Twitter, how many members are there in their subreddit? Behind many successful projects there is 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 company's success.
The roadmap is also important. It should be carefully observed if the team is able to achieve the goals set in the project planning. This gives you an idea if the goals are realistic and the team is able to achieve the goals set. If there is no roadmap, it is best to abandon the project.
