Initial coin offering (ICO) is a method used to raise capital in the cryptocurrency environment. The ICO can be seen as an initial public offering (IPO) that utilizes cryptocurrencies. These crowdsales of new cryptocurrencies allow companies to raise funds from the general public, and token buyers receive something close to equity in the network, as the price of their shares should climb as the platform grows in popularity. With extremely little regulation of ICOs in the United States at the moment, anyone with access to the necessary technology is free to start a new cryptocurrency.
An initial coin offering (ICO) is a method used to raise capital in the cryptocurrency environment. The ICO can be seen as an initial public offering (IPO) that is used for cryptocurrencies.
Like digital crowdfunding, ICOs allow startups not only to raise capital without yielding equity but even to build a community of incentivized users who wish the project to be successful so their presale tokens value will rise.
How an Initial Coin Offering (ICO) Works
When a cryptocurrency startup seeks to acquire funds through an initial coin offering (ICO), the first step is to figure out how the project will be structured. ICOs can be set up in a variety of methods, including:
Static supply and static price: A company can specify a specified financial goal or limit, which means that the price of each token sold in the ICO is predetermined, and the overall token supply is fixed.
Static supply and dynamic price: An ICO can have a fixed dynamic financing goal and supply of tokens, which implies that the ultimate price per token is determined by the amount of money raised in the ICO.
Dynamic supply and static price: Some ICOs feature a dynamic token supply, but a fixed price, which means that the supply is determined by the amount of money raised.
Initial coin offerings, or ICOs, have been raising money at a breakneck pace for a new type of investment, and largely for early-stage project developers.
These crowdsales of new cryptocurrencies allow companies to raise funds from the general public, and token buyers receive something close to equity in the network, as the price of their shares should climb as the platform grows in popularity.
Early-stage blockchain firms have already raised more money through ICOs than venture capital this year, and VCs are beginning to disrupt themselves by tokenizing their own fundraising rounds, recognizing the writing on the wall.
But a lot of questions are being raised with this crowdfunding method, starting with: Is a token sold via an ICO security?
Furthermore, the ease with which large sums of money may be raised based on a white paper containing the words “blockchain” or “token” has resulted in several scams and ill-conceived projects have raised a lot more money than they would have from seasoned ventures.
Along with the ICO structure, the crypto project typically creates a white paper, which it makes available to potential investors via a new website dedicated to the token. The project’s promoters use their white paper to explain important information about the ICO:
- What the project entails
- The requirement that the project would meet once completed
- How much money is required for the project?
- How many virtual tokens will the founders keep?
- What forms of payment (currencies) will be accepted?
- How long will the ICO campaign last?
The white paper is released as part of the project’s ICO campaign, which is intended to encourage project enthusiasts and supporters to purchase some of the project’s tokens.
To purchase the new tokens, investors can generally use fiat or digital currency, and it’s becoming more common for investors to pay with other forms of cryptocurrency such as Bitcoin or Ethereum. These newly issued tokens are analogous to stock shares sold to investors during an initial public offering (IPO).
If the money raised in an ICO is less than the minimum amount required by the ICO’s criteria, the money may be returned to the project’s investors in its entirety. The ICO would then be deemed a failure. If the funding requirements are met within the time frame specified, the funds raised are spent to achieve the project’s objectives.
Who is Eligible to Launch an ICO?
An ICO can be launched by anyone. With extremely little regulation of ICOs in the United States at the moment, anyone with access to the necessary technology is free to start a new cryptocurrency.
However, the lack of regulation means that someone may do whatever it takes to convince you that they have a legit ICO—and then disappear with the money.
An ICO is possibly one of the simplest ways to set up a scam among all possible funding avenues.
Famous actors and entertainers, such as Steven Seagal, will occasionally encourage their fans to invest in a hot new ICO.
Floyd Mayweather Jr., the boxing champion, and DJ Khaled, the music mogul, both promoted Centra Tech, an ICO that raised $30 million at the end of 2017.
Centra Tech was eventually determined to be a scam in court, likely resulting in the two celebrities settling charges with US regulators and 3 Centra Tech founders pleading guilty to ICO fraud.
Even if anyone can create and launch an ICO, it does not follow that everyone should. If you are considering organizing an initial coin offering, consider whether your company would benefit significantly from an ICO.
Companies like LCX, Coinlist, and Tokensoft have a reputation when it comes to token sales.
I would personally recommend LCX because recently they have conducted a successfully compliant Token sale of $DGMV which is a token from Digicorp Labs and currently you will see a $VIS Token sale at LCX.
But yes I would also suggest you do your own research and check out other great options available in the market like:
- Coinlist
- Tokensoft
- Indiegogo
- ICO Engine
- LCX
We know what ICO is, how it works, and who can launch it but we must also know what are its advantages and disadvantages, right?
Online services can help with the creation of cryptocurrency tokens, making it incredibly simple for a business to consider launching an ICO.
ICO managers generate tokens in accordance with the terms of the ICO, end up receiving them, and then allocate the tokens to individual investors by transferring the coins.
However, because ICOs are not regulated by financial institutions such as the SEC, funds lost resulting from fraud or ineptness may never be recovered.
Initial investors in an ICO are typically motivated by the assumption that the tokens will appreciate in value once the cryptocurrency is launched. The potential for extremely high returns is the primary advantage of an ICO.
So that was all about ICOs and which company you should choose to launch your first token. Hope this was helpful and I will see you with something more interesting and knowledgeable regarding technology, AI, and of course crypto.
