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15 points to understand Initial Coin Offerings and how they work


Jul 13, 2017 Posted /  3649 Views


15 points to understand Initial Coin Offerings and how they work

15 points to understand Initial Coin Offerings and how they work:


An Initial Coin Offering or ICO is one of the most successful and new crowdfunding methods through which funds are raised to launch a new cryptocurrency or a platform. ICO is basically the process of selling the new crypto coin tokens to investors to raise fund for the platform's further development and for the release of tokens. Before ICO, the usual methods of funding were from banks and other investors. And there was another crowdfunding concept under the regulation of Government which is known as IPO. ICO is the most efficient and currently the most popular crowdfunding technique. There are almost 20 ICOs happening every month nowadays for the launch of new crypto coins.

1. The first ICO:


The first ICO was done for the launch of Mastercoin in 2013. When the ICO happened for the coin which was built on the top of Bitcoin platform raised over $500,000. Then there were many highly successful ICOs. The most prominent one happened in 2014 was the Ethereum. Then there were ICOs like the DAO, the Waves and so many others which raised lots of money in a very short time.

2. Customers are better aligned with company's success through ICO:


The biggest advantage of the ICO is that the investors or the token holders will be more aligned with the company's success. Because in ICOs, investors are given special bonuses and sometimes even co-ownership with the company. When the funds are raised from the banks or other investors, the customers of that crypto coin or platform will not be that aligned with the company's other endeavors.

3. Working of ICOs:


If you have an idea for a crypto coin or related platform, you have to first decide the milestones for the development for it. Then the next step is to announce the token sale date and some of the basic details like the platform on which the coin is developed, initial price, the duration of ICO, bonuses for the investors, and basic features of the new project. Then a whitepaper is to be published and let all the interested people get access to it. Make all necessary changes, and carry out the token sale

4. Digital wallets are needed:


Usually, not one cryptocurrency, different cryptocurrencies, and fiat money are accepted for an ICO. There is a need for digital wallets in the investment process. The customer should have their own wallet and there will be a wallet for receiving the money in the platform. Sometimes platforms who don't have an inherent wallet in their platform use the facilities of crypto exchanges.

5. Establishing the value of the tokens:


Usually, a company decides its goal of how much money they should raise from the ICO. They may look at the market prices and conditions and then decide the initial price of the token. Or sometimes, they will declare a specific price for the token and specify the use of proceeds. Further price will be changed according to the market scenarios and development of the platform.

6. Tokens can be purchased with cryptocurrencies as well as fiat currency:


For the ICOs, tokens can be purchased either with crypto coins or with Fiat currency according to the platform. But some wallets don't have the ability to exchange the fiat currency. In that case, the founders have to arrange any special means for the fiat currency transactions. In most of the cases, they will be specifying which all cryptocurrencies they will be accepting on their website.

7. Types of companies using ICOs:


ICOs are happening globally and mostly ICOs are the crowd funding tool employed for the platforms on the basis of blockchain technology and cryptocurrencies. It can be used for crowdfunding for other industries also. But the most commonly seen ICOs are happening for the crypto coin and blockchain industry.

8. Global industry:


ICOs are not just confined to a particular region. It is a phenomenon happening worldwide. Lots of companies from lots of countries are launching ICOs for their Crypto-projects. People from all over the world irrespective of country or place of residence invest in them.

9. Ways to sell the bought tokens:


You can sell the tokens you bought in the ICO just after the end of ICO. It is a profitable thing for the token holders. There is another way by which you can hold the tokens for a while and then sell it in the market. By that way, more amount of money can be obtained by the token holders as profit.

10. There may or may not be a lock-up period:


There are usually no lock-up periods after the end of ICO. At the end of an ICO, token holders can resell their tokens. But currently, there is a trend of locking up the coins for a short period of time during which the market price of the token may increase and you will get more profit.

11. The difference between ICO and IPO:


There are many similarities between the concepts of Initial Public Offering and Initial Coin Offerings. But there are some major differences also. The main 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.


12. Platforms for giving details about ICOs:

 
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).


13. No rules and regulations involved:


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.

14. Ways to spot a fraudulent ICO scam:


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.

15. Examples of successful ICOs:


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.


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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