10 facts about Initial Coin Offerings (ICO)
Jun 23, 2017 Posted / 2935 Views
An Initial Coin Offering (ICO) is one of the various methods used in crowdfunding the release of a new cryptocurrency. Before the launch of the cryptocurrency, the tokens of the new cryptocurrency are sold to raise fund for the technical development of the new cryptocurrency. There is another concept IPO (Initial public offering) which is done under government regulation. ICO has no government regulation and acquisition of the sold tokens does not give ownership in the company that is developing the new cryptocurrency.
The first ICO was developed in 2013 for Mastercoin. ICOs are becoming very popular in the present scenarios of the release of lots of new cryptocurrencies. Etherium released a coin in 2014 by ICO. There are lots of websites which track the ICOs as of now. Currently, there are 20 offerings happening in a month for the release of new crypto coins.
There are many possible benefits to taking part in an ICO. The simplest thing is that when you are helping a company launch its product, there is a chance of getting money by selling the tokens you have already purchased. It's just like Kickstarter where people fund or support on projects which they personally seem interested and efficient. There are also other ways to make profits from ICO funding.During the initial funding, the tokens are sold at fixed price in denominations of bit coins or fiat money. But once the product becomes full-flourished, the backer can send their tokens for a very large amount of money.
There are many similarities between the concepts of Initial Public Offering and Initial Coin Offerings. But there are some major differences also. The first difference is during an IPO, the released shares of a company denote a share of ownership in that respective company. Whereas this does not happen inICO, where the tokens are sold to the public. Another key difference is that IPOs are highly regulated by the government. Because of this, a partaking company is required to prepare large amounts of work before releasing its shares. There are also severe consequences in the case of non-compliance. But ICO is a new scheme, not at all touched by government regulation.
The applications of ICOs depend on the projects in which they are used. They may have additional features also. One really good example for this is the Storjcoin. They are crypto coins or tokens that were released by storj.io while doing its ICO. It is a decentralized cloud storage space. when its main product was released, users were able to spend Storjcoins in the storage space and they can be used for trade just like any other crypto coins. Another good example is Ethereum.
The first project in which ICO was used as the crowd funding tool was Mastercoin in 2013. They managed to secure $5 million worth of Bitcoins by selling their own tokens. Many other companies followed the trend, like Ethereum in 2014, or Waves in 2016, raising almost $18 million and $16 million respectively. ICO is a very good way of starting a project, provided there is a scope for success in the project and there is a good team behind the project.
There are many platforms dedicated to making and joining to the ICOs as simple as possible. These platforms include Waves, ICONOMI and TokenMarket. Many of the Blockchain projects have been launching their ICOs on their own websites. This is not very optimal because launching the details about the campaign on your own page will not help you to get maximum viewers. Therefore people started building platforms where there would be details about ICO campaigns from different companies. Kickstarter is one such platform for non-crypto ICOs. For crypto-token based ICOs, some platforms are Waves, ICONOMI, State of the Dapps (Ethereum-based).
By looking into the developments of ICO funded startups, one can assume that many are still under construction. Some of them may leap into highly successful companies, some may fall. It takes time for its development. Making the situation worse, there is no way to distinguish between the genuine projects and the scams. Because of this, industry experts insist that contributors have to check thoroughly before investing and they should get deeply familiar with the project founders, realizability of the project, and its potential for development. So it's in one way a risk for the investors of these ICO funded projects.
There are actually no guarantees enforced by the government for the ICOs. Because of that, many fraudulent things happened in the industry. To restrict all those and to provide security to the investors, companies by themselves have started to impose many restrictions.
Some of the self-imposed restrictions are given:
First, storing the contributions of each community member in escrow wallets where we need private keys for access.
Second, Establishing a legal document for the company and forming a set of terms and conditions of the ICO.
There are several signs of identifying a fraudulent ICO. They are developers will be anonymous, the lack of an escrow wallet and Unclear and unrealisable goals. The cryptocurrency community had to handle many scam ICO campaigns in the past. Some basic signs or red flags showing the company doing an ICO is fraudulent are the lack of transparency, unrealistic goals, anonymous developers and lack of an escrow wallet.
There are many websites which give details about starting ICOs and also about the presently occurring ICO campaigns which are helpful to both the investors and the startups.Some of the examples are Ambisafe, Bitcoin Talk Forum, COinschedule, Cyber fund, ICO rating, ICOO, etc.
Even if it has a drawback of having no government regulation, it has great development scope in the coming years. Just like when the internet was introduced, we never knew back then that the present giants of IT industry would have been this successful. ICOs with the help of crypto tokens has a high potential in becoming the best crowdfunding technique in the industry.
Applancer is an open platform for discussion on all things like Blockchain , Cryptocurrency and Ico news updates. As such, the opinions expressed in this article are the author's own and do not necessarily reflect the view of Applancer .
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