A Beginners Guide to Initial Coin Offering(ICO)

The world of cryptocurrency is running at a very fast pace. Every day startups are inventing new products based on Blockchain and struggling to raise funds.

But..

In the recent times, you must have heard about the word ‘ICO’ and you must be thinking what is ICO all about? Should you invest in ICO or not?

So, I thought why not share complete details about ICO so that you know each and every bit about this new way of raising funds.  I will also share a complete list of upcoming and ongoing ICO’s under this article.

So without a further ado! Let’s get started.

Shall we?

We all know that Blockchain is a revolutionary technology has it has already started making an impact the way industries used to work.

Startups with new ideas are using Blockchain to make revolutionary products but to grow the product they need funds. So inspite of asking venture capitalist they raise funds through ICO.

This way of raising funds has become popular over the last 3-4 years and Blockchain-based companies had raised over $1.3 Billion.

Since this is a new technology there are many revolutionary projects as well as Ponzi schemes. So you need to be good at distinguishing between the real and the fake ones.

ICO

What is an ICO?

ICO stands for Initial Coin Offering.

You might be confused, let me tell you in a more traditional way.

When a new company needs fund to grow there product or idea, they have to give a share or equity of the company to the investor or venture capitalist.

However, If a company is big enough then they can secure funds by going public. This is called IPO i.e Initial Public Offering.

In IPO, investors and ordinary people buy the shares of the company at a dirt cheap rates. Over the period of time and with success of the company price of the share increases. So the investors make huge money by investing in the right company at the right time. Just for an example, People who invested in Facebook, Amazon, Google etc are pretty rich now.

Then people started using the same concept in Blockchain based projects and companies. Hence, ICO was born.

So, An ICO is similar to IPO but it has a few major differences:

  1. ICOs are decentralized i.e. there is not authorized to control them
  2. No rigorous file work
  3. Not a single governmental regulation unlike IPO which has huge regulations

Similar to the IPO where investors get shares, in ICO the investors get Tokens(Cryptocoins).

So this was ICO in the nutshell, let me give you a bit more detail about how an Initial Coin offering (ICO) is actually completed.

When a Cryptocurrency or a Blockchain based startup wants to raise money, they create a whitepaper which includes:

  • What the project is all about
  • What real-world problem they are solving
  • How much money is needed
  • What will be the total volume of token
  • How many coins/tokens will be distributed and how much will they keep for themselves
  • What will be the duration of ICO
  • How will they accept payments

These coins are generally referred as Tokens and are similar to shares that are sold in an IPO.

The ICO takes place in a pre-announced time frame and if the company is unable to raise the minimum funds, the crowdsale/ICO is deemed unsuccessful.

These tokens are sold for a very low price and investors buy them to make huge profits when the project is initiated. Often, the price of these token become 5-10x within 2-4months of the crowdsale. The best examples of the currencies which gave huge returns are NEO, Ethereum, OMG, Sia Coin, TenX etc.

NEO token was just $0.036, however, its current price is around $35 per coin. Similarly, Ethereum ICO price was $0.311 and today 1 Ethereum is worth around $300.

Remember: Price of cryptocurrency varies with time. The attached image is for June 2017.

Ico prices

Though there are 100’s of successful ICOs, there are many fraudulent ICOs as well. These ICO build a fraud roadmap, whitepaper, do huge marketing and raise plenty of funds and vanish into thin air.

Since there is no legal authority to command ICO, investors might end up losing their money if not invested wisely. This is the reason why people are reminded to do a complete research about the company and its team before investing even a single penny.

How To Take Part in an ICO?

Taking part in an ICO is pretty easy. You just need to keep track of ongoing and Upcoming ICO projects in the market. You can find the complete list of the Upcoming and Ongoing ICO at this page itself.

You need to do a complete research about the company project and most importantly its team members. If the team has a good professional record, then the chances of making a profit in the long run are huge. Don’t be in hurry and never trust the ads. Join a few forum, read the whitepaper, discuss the project on Reddit and Facebook groups.

Don’t be in hurry and never trust the ads. Join a few forum, read the whitepaper, discuss the project on Reddit and Facebook groups.

Invest in the project which you trust because you can end up losing your money almost instantly.

What are the Pro & Cons of an ICO?

With the above-mentioned examples, you must have understood that ICOs have a great tendency to make you a millionaire but half cooked information could make you lose money.

So, Let have a quick look at some Pro & Cons of an ICO.

Pros

  • Potential Profit for Investors – ICO gives Investors a huge oppurtunity to make upto 20x of their money within 1-2 years. Projects like Ethereum, NEO, CIVIC etc have proved themselves and early investors made quite a good money.
  • Easy of conducting an ICO – Unlike IPO where the company has to go through various government laws, do paperwork, an ICO just needs a Whitepaper and that is it. If the project is worthy enough, it will attract investors automatically.
  • Innovation – ICO provides an oppurtunity for developers to innovate and come up with new ideas to build a better tomorrow.

Cons

  • Scam Projects – Since not much paperwork and authorization is required, it is easy for scammers to propose a fraud ICO. There are many ICOs like TMT(To The Moon), Tithecoin etc which proved to be a scam. So you need to do complete research before riding on to the ICO wave.
  • Whaling – When one person or a group of people buy a large amount of token in an ICO, it is called whaling. For example, in BAT ICO was over in just 24 seconds and it raised a total of $35 Million. Almost 25% of the tokens were bought by a single investor.
    Such investors manipulate the market and sell the token at a higher price thus making millions with a single investment.
  • Storing Token – Since the project is not much matured there are not much availability of that particular wallet. You can store the tokens in your Ether wallet if the tokens are made on Ethereum Platform while storing tokens made on other platforms could be a difficult task.

I hope by now you must have understood what ICO is all about and how you can invest in them.

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