crypto basics

What is an ICO?

Daksh Murkute | | |

The crypto space has been on an unprecedented boom lately and it finally garnered the attention it deserved.

 

With this boom we have seen a lot of ICOs coming up with various innovative projects, but what are these ICOs actually?

 

In this blog post, I will tell you everything you need to know about ICOs and how you participate in such events and create wealth for yourself.

 

At the end, I will also talk about certain ways to spot legitimate ICO and how you should avoid falling for scams, so stay attentive till the end.

Contents

Initial Coin Offering

ICO = IPO?

Types of ICOs

  1. Private ICO
  2. Public ICO

How to spot legitimate ICOs?

  1. Innovation
  2. Team
  3. Transparency

What do you think about ICOs?

 

Initial Coin Offering

 

What is Initial Coin Offering

 

Cryptocurrencies are often referred to as coins and an Initial Coin Offering is an investment drive where founders or developers of that particular coin or cryptocurrency offer the asset to people in return for an investment.

 

A cryptocurrency does not simply pop up on its own, cryptocurrencies are developed by individuals or a firm. Extensive hours are required to build and code the entire platform.

 

Individuals or firms that are backed by sufficient capital keep their activities bootstrapped and do not take any outside capital, while some cryptocurrency projects require additional funding.

 

In an Initial Coin Offering, the founder or the founding company opens its doors to receive funding from the public.

 

Individuals are pitched about the cryptocurrency by releasing a whitepaper that mentions everything about the coin and efforts are made to convince them to invest in the coin. The investors get some coins or cryptocurrencies in return.

 

The basic idea behind an ICO is that the investor is simply buying a certain number of coins for a particular amount, which they would then sell for a higher price as and when the value of the coin increases.

 

ICO = IPO?

 

ICO is equivalent to IPO

 

The similarities between the terms ICO and IPO may mislead one into thinking that an Initial Coin Offering which is carried out by a cryptocurrency firm is similar to an Initial Public Offering that companies carry out when they go public and get their company listed on a stock exchange. But this is not the case entirely.

 

The main difference between an ICO and an IPO is that in the latter the owners or founders of the company give away ownership in the company in return for an investment while in the former the founders simply give the investors a number of coins and no ownership in the project.

 

Unlike the IPOs which require permissions from various financial authorities of the country, ICOs can be carried out without any authority’s permission. Since cryptocurrency is in itself decentralized, ICOs too are the same in nature.

 

In an IPO, individuals that have been allotted shares of the company can straight away sell it in the stock exchange, same is not the case with an ICO.

 

The coins that are offered to investors may or may not have any value yet. The investors and the founders bet on the future prospects of the cryptocurrencies and its chances of becoming mainstream.

 

Types of ICOs

 

Types of ICO's

 

There are two types of ICOs carried out based on the target investor, private ICO and public ICO.

1. Private ICO

In this kind of ICO, as the name suggests, the founders of the cryptocurrency approach a group of investors. Only accredited investors participate in the private ICOs and they are limited in number.

 

2. Public ICO

A public ICO is one which is open to the general public for participation. It is more like a crowdfunding drive. Almost anyone can become an investor through public ICOs. Due to regulatory concerns, private ICOs are more viable than public ICOs.

 

How to spot legitimate ICOs?

ICOs have a bad name due to the large numbers of scams that have duped investors of their money. Lack of awareness about this domain of cryptocurrencies among investors is what fuels such scams. It should be noted that not all ICOs have turned out to be scams.

 

There have been some genuine ICOs that had good underlying value and rewarded investors as their values soared. Some coins with successful ICOs include Ripple, Mastercoin, Ethereum.

 

Investors can compare the cryptocurrencies of prospective ICOs with the already established cryptocurrencies and look for certain similarities. This can ensure the investor about the underlying value of the cryptocurrency as well as steer away from any fraudulent ICO.

 

Brief checklist investors can tick off before investing in ICOs:

1. Innovation

 

Innovations

 

Investors must determine how the cryptocurrency is different from some that are already available. There is no point in launching a product that is already out there as it will face strong competition in the market.

 

One thing that investors can look for is whether the cryptocurrency at hand solves any problem that exists in the cryptocurrencies in the market. This is one innovation that the market will welcome and acknowledge.

 

2. Team

 

Team is the tick off before investing ICU

 

A product is as good as its team. The quality of the team behind a project will reflect in the quality of the project that the team has worked hard to build.

 

ICOs are launched by individuals and investors must study the founders. Investors can look for cryptocurrency related background, prior experience in the field and whether they have a clean record.

 

3. Transparency

 

Transparency is the tick off before investing ICU

 

Before investing in an ICO investors can only scrutinize the whitepaper and the founders of the cryptocurrency. They must ask every intricate question related to the project and must be able to identify if the answers that they get in return are genuine or not.

 

Transparency is the key. If investors sense something fishy in the beginning itself, they can either choose to get it clarified from the founders or can even choose to walk away from the ICO.

 

To establish transparency, investors can inquire about the vision of the founders regarding the project and do they plan on building it. Investors can inquire about the manner in which the funds that are being raised will be utilized.

 

These are just some examples of questions that investors can and must ask. If investors are technologically sound, they can even ask grill the founders on the technicalities of the project.

 

What do you think about ICOs?

The advantage of the ICO is that it allows cryptocurrency projects to get funded and put into action. A disadvantage of the ICOs is that it is an unregulated affair hence we have had to experience a lot of fraudulent ICOs taking place.

 

ICOs have received lots of attention in the recent years and it would be interesting to see how this market grows. Regulations will come into place and rules will become stricter. This is essential to flush out the scam ICO programs and to protect investor’s interests.

 

But what do you think about ICOs and have you been involved in any such event? I would love to know.

 

Don’t forget to share this blog post with every crypto enthusiast you know and let them also explore this side of this innovative space.

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