What is an ICO? Getting into cryptocurrency comes with a whole new set of terms and definitions that may be pretty confusing at first. Especially if you haven’t been interested in traditional investing before, getting to know the digital currency world comes with quite a few things to wrap your head around.
Knowing your crypto-terminology helps you make the right decisions in this unpredictable and volatile new market. Understanding what things are, what their processes should be, and how to detect a scam can help you make wise investments and maybe even make a little (or a lot) of money in the end.
In traditional investing, companies can hold something called an Initial Public Offering (IPO). This is the process by which the company offers shares in the business in exchange for investment funds, helping them to reach certain goals or launch the business.
An ICO is essentially the same process, except for new cryptocurrencies looking to gain some value and legitimacy in the digital marketplace. Used as an acronym for Initial Coin Offering, new crypto-companies offer coins instead of shares or a point in a blockchain in exchange for funding from investors.
ICO’s differ from, say, crowdfunding, however, because investors do so with the intent and hope that they will hold something valuable after the currency begins to increase. In crowdsourcing, investors can be seen more accurately as donors, and while they may receive some return as a thank you, it’s not a guarantee, nor the purpose.
What Is an ICO: Private vs. Public
There are two types of ICO: private and public.
In a private ICO, only certain investors are entitled to buying tokens. Nine times out of ten, these investors are either financial institutions or financial whales (i.e., someone with immense amounts of capital).
Public ICOs, conversely, are available to everyone and anyone willing to buy a token. In monetary terms, the only requirement for an investor is to be able to afford the price of the token.
What Is an ICO Cryptocurrency?
An ICO crypto is simply an ICO designed to fund a completely new cryptocurrency. Investors buy coins and expect them to create a return by becoming more valuable over time.
Coin or Token?
A coin is something designed with one exclusive purpose, to store a certain value. A token, however, stores multifaceted amounts of data and thus far has only been associated with the Ethereum platform and currency.
When coins are being offered, it’s called an ICO. When tokens are being offered, it’s called a “token launch.”
How Does an ICO Work?
All ICOs follow relatively the same basic protocol. Companies looking to host an ICO need to first outline their project and purpose on something called a white paper. This document gives potential investors the necessary details of the projects, what to expect out of the investment, and most importantly, the purpose of the funds being raised.
The white paper should outline a few things, including:
- What your product/service aims to provide
- How it addresses market pain points
- How it works
- The team working on the project
- How much money it needs to take off
After you’ve released your white paper, your ICO coin/token distribution campaign begins. Eager investors buy tokens in exchange for either cash or other more established cryptocurrency.
If enough people invest in your coin and the project is successful, it allows for the goals of the project to begin being fulfilled, not to mention with a cryptocurrency, now there are a significant number of interested people holding your new currency. If enough funds aren’t raised, everything is returned to investors, and the ICO is deemed a failure.
ICO Vs. IPO
The ICO meaning and process closely resembles that of a company IPO. Both involve the campaigning of investors for funding in exchange for some share/coin/token.
There are, however, some key differences that set them apart.
- IPOs take longer to set up and have much more strict requirements for starting
- IPOs are less likely to turn out to be scams
- You only need an Internet connection to participate in an ICO
- Buying an ICO cryptocurrency or token doesn’t give you any ownership of the funded project
- IPOs are highly regulated
Is ICO Only for Blockchain Projects?
It is possible for non-tech companies to hold an ICO to sell coins or tokens that can be used with the services of the start-up company. Due to the number of scams that are present in digital tech and cryptocurrency funding rounds, the likelihood of this type of ICO being successful is quite low.
ICO investors always look for two things: prior experience with blockchain and the future utility for the ICO’s blockchain. Knowing what an ICO is when it’s fraudulent and when it’s not means the difference between profiting or having their money stolen. Even small irregularities can raise warning flags, scaring away potential funders.
Why Use an ICO?
ICOs are a great strategy, especially for new cryptocurrencies trying to break into the market. Firstly, the purpose is to provide keen funders first access to a new altcoin and raise funds to jumpstart the currency’s value. Secondly, it creates awareness of what is the ICO coin, making them more likely to be used. If new currencies don’t get used, there is no way for them to go up in value.
The Advantages of ICOs
There are a few key advantages to consider with ICOs.
Like so much of the crypto world, regulation around ICOs is next to non-existent. As such, there are few barriers stopping anyone with the right capital from starting an ICO initial coin offering.
Fast and Easy
If you want a lightning-quick way to create a token system, all you need to do is to contact a token creation company. They provide all of the coding required to launch your own token.
Potential for Profit
ICOs have potential to be tremendously profitable with the right product, such as:
- IOTA ROI: 424,084%
- Neo ROI: 378,453%
- Ethereum ROI: 279,843%
- StratisROI: 102,338%
- DigixDAO ROI: 12,044%
What Is ICO’s Biggest Disadvantage?
While it’s a definite perk of the offering, it’s always a downside. One of the most serious issues with ICOs is also their lack of regulation. This aspect allows anyone to host their own ICO, which in one way is a great thing, and on the other, allows for cybercriminals and scammers to participate. Statistics over the last few years show that 78% of ICOs are fraudulent, making it the biggest priority to do the research when thinking about investing in an ICO.
How to Spot a Fake ICO in 2021
Here are a few pointers that will help reduce the odds of falling for an ICO scam.
- Gauge whether the ICO sounds suspiciously ambitious
- Thoroughly read the white paper and look for a clear purpose for the funding
- Learn about the team running the project
- Closely follow token sales figures (if there’s no way to track these numbers, odds of a scam are high)
State Of the Initial Coin Offering In 2021
The ICO landscape has tempered in recent years. The ICO boom of 2017 made crypto fans certain this way of fundraising will become the norm in the blockchain industry. With the rising number of scams, however, and the ensuing crackdown from the U.S. Securities and Exchange Commission, the communities optimist has been shrouded quite abit.
With new regulations, the opportunities for frauds and scammers to launch false ICOs will go down, but at the same time, it will make this type of offering less popular.
Best ICOs to Invest In
Here’s an ICO list of the best ICO projects (upcoming, pre-sale, and active) at the moment of writing:
- Blockster (BXR)
- My Lotto Coin
- Merchant Token
- Port Network
- Ledder Ledder
There’s no guarantee with any investment. As the available evidence suggests, however, the above projects are legitimate and worth your consideration.
People Also Ask
ICO is the initial offering of coins or tokens (hence the abbreviation “ICO”) to willing investors. The investors pay for these tokens with either cash or cryptocurrency.
If the ICO gathers enough capital and the project becomes successful, the tokens investors bought will increase in value, providing an incentive for investment.
However, should the project go under, the token loses value, and the investors usually get their money back.
ICOs are technically legal in the United States. The SEC is stepping in to increase regulation in ICO procedures, however. The reason for this is a worryingly high number of ICOs that turned out to be scams.
An ICO is the capital-raising for a cryptocurrency project. The ICO team gives tokens (in this case, coins) to investors in exchange for either cash or another cryptocurrency like Bitcoin.
Depending on how well a cryptocurrency does, investors can expect anything from a tiny ROI to mind-boggling gains. Seeing how volatile the crypto market is, a coin can surge or dip in value seemingly on a whim.
ICOs aren’t banned in the United States per se. Rather, they’re getting more and more regulated. The SEC has made moves to rein in ICOs recently, but they aren’t fully banned or completely unregulated.
The reason behind this regulation is the high number of scams performed under the guise of legitimate ICOs. For now, ICOs with tokens considered securities are subject to regulation.
The question of what is an ICO token in the eyes of the SEC depends on factors like functionality, but the SEC has revealed little in how it deems some tokens securities.