How to Get an Initial Coin Offering (ICO)?
How to Get an Initial Coin Offering?
How to get an initial coin offering is the question that many may have in their minds. Nowadays, cryptocurrencies are welcomed by people.
Thus, besides the existing cryptos, more and more new ones are entering the market. This has caused popping up many initial coin offerings (ICOs) lately.
ICO, which stands for initial coin offering, is a technique for introducing new cryptocurrencies and raising funds for start-ups.
Banks have so many rigorous processes for giving capital to start-ups, so they easily use ICO projects for raising funds for their new cryptocurrency venture.
Now, if you want to know more about ICO and how you can get an initial coin offering, keep reading the rest of this article.
First, you need to understand what is Cryptocurrency, Blockchain, and ICO token. Then you will find out about ICO.
Cryptocurrency
A cryptocurrency is actually digital money or virtual currency. To make transactions secure and also verify new transactions, cryptocurrency uses cryptography.
So how is this cryptocurrency different from the traditional currency or fiat money?
The main difference is decentralization. It means that no single authority, such as a central bank, can interfere or manipulate the balances.
Instead of central banks or other regulatory authorities, the funds are totally under the control of users. In this way, there is no chance of freezing the account or refusing access to it.
During the 1990s, so many people attempted to create a digital asset, but they failed due to many different reasons such as financial problems, fraud, etc.
Finally, in 2009, the first cryptocurrency, Bitcoin, was invented by Satoshi Nakamoto, whose identity is still unknown.
Cryptocurrencies can be used to purchase goods or services. However, many people intend to keep them as an investment like any other investment such as stocks, gold, real estate, etc.
Blockchain
Blockchain, which is referred to as Distributed Ledger Technology (DLT), makes changing the history of any digital asset almost impossible.
But how is this achievable? It uses decentralization and cryptographic hashing.
It can be updated if only the network participants verify that, so there is no way to change it after it is updated and new data is entered.
DLT means a decentralized database that is controlled by many participants.
It is a type of database, an information recording system, that stores information in blocks chained together.
This digital transaction ledger is public to the entire network of computer systems. This network is a peer-to-peer network.
Each of the blocks in the chain holds several transactions along with their corresponding information.
ICO Token
When you invest in an ICO project, you receive coins that are actually cryptocurrencies that do not have any value at first.
But they will be worth a specific amount after the project is launched, and it becomes successful.
These tokens are like the shares in an IPO (Initial Public Offering). They are also called cryptocoins.
What Is an ICO?
Now that you have found out about the basic concepts of ICO, let us talk about ICO itself.
"ICO" stands for "initial coin offering." It is a technique to raise capital for companies in cryptocurrency and Blockchain by creating and issuing a new cryptocurrency.
ICO was first started in 2013 by Mastercoin that raised approximately $600,000. It was for creating a Bitcoin exchange and transaction platform.
Mastercoin is a digital currency and communications protocol layer. After the successful capital raising of Mastercoin in 2013, numerous companies welcomed the idea and started their own ICOs.
By participating in an ICO, the people who invest in it receive some tokens that will be worth a specific amount after it becomes successful.
ICO vs. IPO
ICO is just like IPO but with some difference. It is the cryptocurrency version of IPO.
But what is an IPO or initial public offering?
An IPO is when a company releases its stock on the stock exchange, and interested people can buy shares in the company for a specific price.
In this way, they will be a partial owner of the company, and in case the company does well, the value of their shares increases, and they can yield a profit over it.
Now, how are these two concepts different?
The difference is that ICO uses cryptocurrencies, and it is not as regulated as IPOs.
Also, unlike IPOs, it does not provide investors with shares of the business. Instead, it offers cryptocurrencies to investors.
Types of ICOs
ICOs can be public or private. Let us explain each of them.
Public ICOs
Public initial coin offering is a type of ICO that almost anyone can participate in and invest in it. It is actually a form of crowdfunding. This type of initial coin offering is not as regulated as the second type.
Private ICOs
Unlike the first type, this type of initial coin offering is not for the public.
It is only for a limited number of investors.
The company will specify those who are qualified to join the project. Private initial coin offering is more popular due to its security and safety.
How Does ICO Work?
Now that you know what an initial coin offering is, we can talk about how it works.
The company that intends to hold an ICO has to clarify every detail about their project. This detailed information has to be in the whitepaper that will be released to launch an initial coin offering.
So what is an ICO whitepaper?
It is a document that includes information about the ICO project.
The data outlined in the whitepaper can vary from company to company.
But it may include the project goal, the types of acceptable currencies, the amount of money needed for the project to launch, and some other helpful information about it.
By reading the whitepaper, investors can realize every aspect of the project and decide if it is profitable to invest in it.
After that, if they decided to invest in it, they have to buy some ICO tokens that the company offers. They can buy these tokens using fiat money like US dollars, Euros, or a different digital currency.
ICO projects are not always successful. Their success depends on the amount of money they raise.
If it is enough to pursue the project goals, then the project is successful. In this case, the value of the investors' shares will increase, and they will benefit from this investment.
Otherwise, if the company does not do well, they have to pay the funds back.
*How to Participate in an ICO?
Now that you know how an initial coin offering works let us find out how to get an initial coin offering, or in other words, how to participate in an ICO.
To participate in an ICO or get an initial coin offering, you cannot use fiat currency. You have to get cryptocurrencies, usually Ether or Bitcoin. So the first step is to buy some cryptos.
First, you need to register on an online exchange. Then you can buy cryptos with your money from your bank account.
You have to transfer your money from your bank account to your exchange account and exchange your fiat money for the cryptocurrency you want to purchase.
It takes only a few seconds. The next thing that you have to consider is that holding your cryptos online is not safe. So it is better to send them to a wallet. In this way, your coins are under your control.
But you may have this question in your mind that which crypto wallet is needed?
Since most token sales use the Ethereum network, you need an Ethereum wallet to participate in them.
However, before deciding, make sure to check out the token purchase agreement.
ICOs begin at a specific time and can be open for a week or even longer. There is a specified address, that whenever the token sale starts, you send your cryptos (ETH) to that address.
Depending on the ICO project terms, you can either receive your tokens right after the token sale or receive them after a couple of days.
ICO Benefits
Let us explain the initial coin offerings benefits for founders and investors.
1. Liquidity
The biggest problem in investments is the lack of liquidity. ICOs enable more fluidity of funds and higher liquidity than company shares due to using tokens. As ICO tokens have value at the moment they are purchased, investors have the opportunity to make considerable gains quickly.
2. ICO for everyone
ICO projects are not just for some accredited investors. Everyone is allowed to participate in them.
Also, there is no time limitation. If you be watchful enough, you can be one of the early contributors by purchasing tokens as soon as the launch.
3. Low competition
Initial coin offering is a new concept in the business and technology world, so many people are not familiar with this method yet. They still use traditional fundraising methods for their projects. This means there is still no high competition in this area.
4. No geographical limitations
Since ICOs use cryptocurrencies, they are available for anyone everywhere in the world. It is all about global accessibility.
Start-ups can raise funds from wherever they are and from whoever they want. There are no geographic boundaries.
ICO Downsides
Now that we have talked about ICO benefits, you may think about its downsides. Here, we explain the disadvantages of ICO.
1. Volatility
The crypto prices are affected by so many different factors. So, there can be rapid price changes that are either a gain opportunity for you or a loss of money.
2. It is not safe
ICOs are not highly regulated. This is their biggest downside. You have to be so careful to make sure that their team is experienced enough and have the knowledge to fulfill the promises they outlined in the whitepaper. There is no guarantee to return your money if they fail.
3. It is only based on speculation
Investing in ICO means investing in an idea. The only thing that you have to rely on is the whitepaper. In the whitepaper, they talk about something that has not happened yet. So you cannot be sure that their project will be successful. More than %90 of ICO projects fail due to many reasons. Also, the project is likely to be hacked.
Final Note
This is all you need to know about how to get an initial coin offering. Do not forget that ICO, like any other investment, has its advantages and disadvantages. So if you are thinking about investing in it or launching one, it is better to consider all the positive and negative sides before doing that.
FAQs
1. What is an ICO, and How Does It Work?
ICO is short for initial coin offering. It is a way of fundraising for start-ups with Blockchain-based projects. It is as same as an Initial Public Offering (IPO), where companies sell stock to raise funds. However, in ICOs, the company sells crypto tokens instead to raise capital.
2. Is ICO Safe?
For many, ICO seems an incredible opportunity. However, whenever you are investing in it, you have to be careful about the risks ahead.
So, what are these risks we are talking about?
As you may know, in ICO projects, the company sells its crypto tokens to investors. Since the cryptocurrency market is so volatile and the prices are not stable, investment in ICOs is unstable as well.
The only thing you can rely on is the whitepaper and the research you did about the team members.
The project progress is not fully transparent, and you do not know how exactly it is going.
Although you have to research about the company, you cannot be sure that they are as experienced as they should be. If they fail, they may not return your money.
The most important thing is that there is always a potential risk that the project being a total scam.
Therefore, ICOs may not be safe enough for you to be sure that they will be profitable if invested in.
3. Can Anyone Launch an ICO?
The short answer is Yes.
ICOs are not highly regulated. This means that anyone can launch an ICO. However, anyone can do it does not mean that everyone should do it, because it is not easy and guaranteed that you will be successful.
You have to consider all the things that may get you in trouble while doing that. Launching a project requires understanding Blockchain and cryptocurrency well.
It is better to work with people who have related experience and can help you with it.