ICO is a very important acronym to know in the crypto world. It stands for initial coin offering and it is a common way cryptocurrencies are created. In fact, many of the cryptocurrencies you know today started off as ICOs.
An ICO begins when somebody has an idea for a token or coin. A token or coin can represent an asset, utility or a unit of value that goes onto a blockchain. The owner of this token or coin idea can then create an ICO. All they need is a white paper that outlines what the coin’s purpose is and any other information to convince others that it will be a success is very useful as well.
This is when the general public can decide if they think the project has potential. If so, anyone can purchase these first utility tokens of the project. By purchasing these tokens they are funding the project at hand, and owning a piece of the project. All ICOs have a funding goal and once that is reached they can officially begin the project. People who purchase these tokens have hopes that the coin will be worth more in the future when the project actually begins.
This seems like a great system to raise capital for these upcoming projects, however, ICOs have a bad reputation due to previous scams and technical issues in the past.
ICO vs. IPO: How initial coin offerings Typically Work
ICO derives from the traditional finance acronym IPO, with a bit of a spin to it. An initial public offering (IPO) is when any individual in the general public has the opportunity to purchase shares of a private corporation such as a stock on the Australian Stock Exchange (ASX). An IPO will take place after the corporation already has investors such as family, friends, or venture capitalists. The corporation must be in a strong and mature state to pass certain regulations before it goes public on a registered stock exchange.
An ICO, on the other hand, refers to cryptocurrency tokens. Companies that launch ICOs are essentially trying to raise capital to get the project off the ground. To purchase an ICO, you typically send money or cryptocurrency to a blockchain project. Whoever wants to invest in this is responsible to do their own research and decide if the project is legitimate and will be successful. If it does do well then the ICO tokens they just purchased will be worth more in the future.
What are the Risks of Investing in an ICO
ICO’s are typically speculative and risky investments.
- Could be a scam project from the beginning
- Could not be set up properly technically after it begins
- Could get hacked
Everything in crypto and blockchain is still in its early stages and therefore comes with risks that are constantly trying to be solved. When ICOs took off in 2018 there was a heaping amount of them that were known for being ‘pump and dump’ scams. People would have convincing white papers, advertise they had working technology, and create flashy websites. They would launch their ICO, raise money, but in the end would do a quick rug pull and take off with the funds.
ICOs in 2018 had a terrible reputation and people began to avoid them in fear that they would lose all their money.
Since 2018 however, there have been more laws and regulations for ICOs even from national governments, varying from country to country.
Here are three examples:
Completely banned ICOs in 2017
Declared they could apply federal securities laws to ICOs in 2017 however, did not declare ICOs as a security token.
Still working on ICO regulation law.
ICO’s are still legal in Australia, however, they are subject to Australian consumer law.
The ICO Whitepaper
The Whitepaper is a document that includes all relevant information about an ICO project and serves as the company’s business plan. This paper contains information about the project’s product structure. If these points are clearly stated and explained clearly, the ICO has a good chance of attracting participants.
The reader must be impressed by the whitepaper, so give it your all and include and illustrate anything relevant to your ICO project such as task, benefits, team, roadmap, and future plans, among other things. There also have to be further incentivisation to keep the users interested.
- Can make money if token price increases
- Can be a part of a revolutionary technology
- Can lead to more successful ICOs
If you do your own research of the team involved, read the white paper carefully, and truly think that the token will be useful, then you could get lucky and be an early investor in something revolutionary, like Ethereum. When Ethereum was in it’s ICO stages the price was about $0.40 USD for one ETH. At the time of writing ETH has surpassed A$5000. There are definitely ways to detect if an ICO is legitimate or not, however, it is always important to remember no matter how legit it may seem, always proceed with caution and don’t put it more than you can afford to lose.
Another reward is that you are funding projects that could potentially change the world for the better. Crowdfunding through an ICO can be very rewarding emotionally if all goes well. These projects usually have community groups on Telegram or Facebook to allow you to talk with others involved, including developers. If the project is a success you can take pride in knowing that you were part of the reason for making that possible!
ICO stands for initial coin offering and it is a popular way cryptocurrencies are created. By purchasing these tokens they are funding the project at hand, and owning a piece of the project. In an ICO, when you invest money you are technically still receiving a share like an IPO, but instead of getting a share, you get ICO tokens that have typically have use within that company.
In 2018 ICOs had a terrible reputation and people began to avoid them in fear that they would lose all their money. Since 2018, there have been more laws and regulations for ICOs even from national governments.
These projects usually have community groups on Telegram or Facebook to allow you to talk with others involved, including developers. If the project is a success, you can take pride in knowing that you were part of the reason for making that possible.