What are ICOs? Comprehensive explanation of ICOs!
An ICO is similar to an IPO; in this case, a new project is launched and cryptocurrencies are issued to raise capital. In this article, I will explain in detail what an ICO or Initial Coin Offering is.
What is an ICO (Initial Coin Offering)?
The acronym ICO stands for Initial Coin Offering. An ICO is used by startups that want to launch their own cryptocurrency. During an ICO, the company in question raises money for the development of the new coin or token. If you come into contact with an ICO, you have the opportunity to invest in a coin or token.
An ICO gives you the opportunity to own a certain coin or token as one of the first investors. You can pay for this with euros, but also with bitcoins or other cryptocurrencies. Of course, you don’t do this for nothing, but to make a lot of money in the short or long term. If the launch of the coin or token is successful, you can make a lot of profit as one of the first investors.
Clear explanation of how ICOs work
How does an ICO work?
A new ICO is always announced by the organization that wants to develop the new coin or token. This is usually done on online forums, such as Bitcointalk.org. When a new ICO is announced, you will immediately receive more information about the relevant Initial Coin Offering. With this information, you can decide whether or not to invest in the ICO.
The information about a blockchain project is often recorded in a whitepaper. Most projects are developed on a platform such as Ethereum. First, a testnet is launched, and ultimately a mainnet (the final version of the project). When the platform wants to launch its own blockchain, the tokens must be converted.
An ICO can be launched in three different ways:
- With a fixed price & fixed amount
- With a dynamic price & fixed amount
- With a dynamic price & dynamic supply
How can you invest in an ICO?
If you want to participate in an ICO, you pay a certain amount of euros, bitcoins, or other cryptocurrencies. This is usually done in multiple phases, where you receive fewer coins or tokens each time you invest. This is not for nothing but to convince interested parties to invest earlier in the new coin or token.
You must invest in an ICO before the indicated closing date. Note: sometimes an ICO closes earlier. This is the case when the investment the company needs has already been raised.
How do you select an interesting ICO?
Most ICOs do not yield money for investors. Cryptocurrencies are often issued to provide companies with liquidity.
The money that investors bring in can be used to develop a certain service. The problem with most tokens, however, is that they have no function within that system. When a token has no function, the demand for the token will not increase, causing the investor to lose their investment.
Always ask yourself whether the tokens will really have a function. If not, it is better to stay away from the ICO.
When selecting an ICO, you can pay attention to the following factors:
- Team: Is the development team reliable and experienced?
- Bitcointalk.org: Is there a page and are questions answered well?
- Development phase: Is there a working product already? Is there source code?
- Function: Is it clear why a token would add value?
- Maximum amount: Is there a maximum amount of money that can be raised?
- Distribution: How are the tokens distributed, and is there a maximum number of tokens?
- Whitepaper & Github content: By involving a technical person, you can get a better idea of the project.
By asking critical questions and conducting extensive research, you can avoid investing in a scam ICO.
How can you make money with an ICO?
When an ICO is closed, the developers behind the ICO will start developing the coin or token. The only thing you can do now is wait.
When the coin is launched, you can sell it at a profit if it performs well. Of course, not all ICOs are successful, so it is important to do thorough research.
What are the risks of ICOs?
Unfortunately, it is not only professional and reliable companies that launch ICOs. Criminals have also discovered ICOs: over 80% of all ICOs turned out to be fraudulent.
Several ICOs have already been launched that later turned out to be fake, or a cryptocurrency scam. To prevent becoming a victim of a scam, it is wise to thoroughly research an ICO beforehand. Only when you know all the ins and outs of an ICO is it wise to invest in this Initial Coin Offering.
You should also watch out for so-called pump and dump schemes. This is a trick where the party launching the coin increases the price with often false, positive messages. When the price has risen enough, the founders step out, and the price drops again, never to rise again.
The supervision of ICOs is minimal in most countries. When you are cheated, it is almost impossible to get your money back.
What are the differences between an ICO and IPO?
With an IPO, you become a part-owner of a company by owning a share. However, with an ICO, you do not become a part-owner of the crypto project; you only own a certain currency.
IPOs are regulated by governments, while ICOs are almost unregulated. An ICO is also commonly referred to as a crowdsale.
What were the most successful ICOs?
Despite the bad reputation ICOs have nowadays, investing in the right ICO could have made you a lot of money. Some examples of successful ICOs are:
- Ethereum: at launch, one Ethereum only cost 31 cents! Because the platform was widely used for other ICOs, the value has increased to thousands of dollars.
- NEO: NEO is a competitor of Ethereum and was launched for just over 3 cents. You don’t need a specific programming language to develop an application on NEO.
- NXT: this platform for the financial sector is one of the most successful ICOs ever. An investment of €1,000 would have yielded over €100,000,000 at its peak!
ICOs are often falsely promoted as a way to get rich quick. In practice, you need a lot of knowledge and experience to select a promising IPO.
If you manage to select the right ICO, you can become extremely rich. But given the high risks, it’s wise to only invest money that you can truly miss.