What Is An ICO?

What is an ICO?

ICO stands for Initial Coin Offering (ICO) and it is an important aspect of the cryptocurrency world. If you are familiar with the basics of a stock exchange, you would know about Initial Public Offerings by companies on the exchange. This is just like that except that instead of shares, crypto tokens or coins are offered to the investors instead. Now these coins are based on a new blockchain or programmed into already existing blockchains like Ethereum and Stratis. The coins are offered to the public generally at discount rates to let them crowdfund the latest  projects and business models.The purpose of an ICO is two-fold:

1. Crowdfunding new technology and decentralized startups
2. Introduce unique tokens into the market with each token representing a part of the investment and future worth of the platform.

Once the coins are officially launched, they are adapted by cryptocurrency exchanges and they can be freely traded with other coins and even fiat currency in the exchange according to the latest rate commanded by the free market. There are many ICOs that have raked in hundreds of millions of dollars in direct crowdfunding from the masses due to their unique technology, business model or potential for growth in the future. They include Ethereum itself that founded the concept of crowdfunding, the Golem project in recent years and Utrust, Cloud token, etc in the current year. Hundreds of new ICOs are being launched as they provide an alternative to the the rigged system and heavy regulation that the Initial Public Offerings have to go through on the stock exchange.

Each ICO has to present a whitepaper of their project that underlines the technology and approach of the new startup and how it aims to generate profits or increased coin valuation for its early bird investors. Reading the whitepaper is a first step to understanding the dynamics of the new coin you are looking to invest in. If you think it is promising with no exorbitant and unreal promises, you can look forward to investing in it. Crypto communities are also an important way to get information about new ICOs and whether or not it is advisable to invest in them. The number of coins released in the ICO can be a limited, one-time release or just part of a larger set of tokens that can eventually be mined into existence just like Ethereum or bitcoin.

The ICO generally follows the same pattern. There is a pre-booking event in which you can book new coins before the crowdfunding has started. It has limited number of tokens. It is followed by the Pre-sale or the mini-ICO which has more coins on offer than the pre-booking event but still only a fraction of the total number of coins.

How do ICOs raise their funds?

ICOs are also very diverse in their funding sources. Investors can invest with Ethereum’s Ether token (ETH) and sometimes with Bitcoin (BTC), Ethereum Classic (ETC) and USD as well. Once the crowdfunding is complete, the tokens are released to the public and shortly afterwards the token holders can exchange it on cryptocurrency exchanges.

Are ICOs scams?

ICOs are a great way for companies to raise money and for investors it is a chance to get new coins while they are cheap. But, that doesn’t take away the fact that some ICOs are scams or their plan is just not viable. So, it is important that any potential investor takes time to make a decision and use it follow news, do extensive research and ask around the crypto community. One should never make a rash decision about investing in crypto as once you have invested in them, there is no turning back and it will be very difficult to recoup your investment.