
If you open any newspaper or use any news app, you will find no more than one or two of the most popular bitcoin themes. Despite this, interest in cryptocurrencies has grown in an almost unfathomable way. One of the most excellent methods to enter this market is through an initial coin offering or ICO. This article will overview initial coin offerings and discuss how they might aid in raising business capital. An ICO differs from an IPO. Let's first better understand the purpose of the initial coin offer.
What Does Initial Coin Offering Mean?
ICOs are another form of cryptocurrency or virtual money that companies use to raise funds. Investors can exchange their financial services industry shareholders' assets for specific cryptocurrency tokens through ICO trading platforms. This is a form of crowdfunding where a pass or virtual ticket is created and then sold to raise funds for the blockchain development of a project.
This unique token allows investors to access specific attributes of the issuing business requirements. These tokens are distinctive in making it possible to support open-platform programs that would otherwise be challenging to fund using conventional techniques.
Initial Coin Offerings: Types
There are two types of ICOs. These are:
Private ICO
Participation in private initial coin offerings is restricted to a small number of investors. Private ICOs can only be opened to accredited investors (financial services institutions or high-net-worth individuals). A company can also choose to invest a minimum amount.
Public ICO
Crowdfunding is a form of initial coin offering (ICOs) open to the public. Due to the fact that practically everyone can invest in a public offer, it is a democratic style of investing. Due to regulatory issues, private ICOs are now more viable than public offerings. The popularity of ICOs is growing as a result of the development of cryptocurrencies and blockchain technology. The largest ICO was for an instant messaging service provider. ICOs and IPOs often need to be understood, even though they have many differences. Let's look at the differences between IPO and ICO.
There is a Difference Between IPO and ICO
- Initial public offerings (IPOs) are new stock offerings by a private company. They can sometimes be compared to ICOs. Both IPOs and ICOs are options for companies looking to raise capital.
- The significant difference between ICOs (or initial public offerings) and IPOs is that IPOs involve selling securities and are subject to significantly more laws.
- To go public, a firm must submit a registration declaration to the Securities and Exchange Commission (SEC). The registration statement should include a prospectus including financial data and potential risk factors.
- A trick about cryptocurrency is sold in an initial coin offering (ICO), not security. The formal requirements are different from those of IPOs. But, if a business tries to break the law and holds an ICO for something regarded as a security, it may suffer legal repercussions.
- Both IPOs and ICOs have risks. However, IPOs are more secure because they are primarily regulated.
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Pros of ICO
1. Investors and Startups are Easily Accessible
Investors come from all walks of life. They can be freelance workers or budding investors looking for university jobs. Each investor has a different budget when it comes time to expand their portfolio.
Since stocks and venture capital are in short supply and difficult to get by, large-sized businesses that use cryptocurrencies to invest in tokens may have more access to investors from all socioeconomic backgrounds. This is a fantastic choice for companies whose products need more funding to get off the ground but may gain value over time.
2. Online Accessibility
An ICO has the primary advantage that all transactions can be done online. You can easily trace and investigate everything online. You can easily do background checks and research online by downloading the whitepaper. It contains vital information such as the problem and possible solutions.
- The team's background, including the individuals' Linkedin pages, as well as their community pages.
- Milestones, plans, and milestones for the next months and years.
3. High Liquidity
An asset with high liquidity is one that can be acquired or sold on the financial market rapidly without losing value. Because of the lack of a physical exchange requirement, crypto coins are more liquid than traditional assets and can trade at considerably higher rates. Investors can also monitor their investments by tracking the company's performance in the secondary markets and pricing in real time.
4. There is Less Paperwork
Traditional assets like IPOs, stocks, bonds and other exchange forms rely on regulatory filings. These filings can be time-consuming and energy-consuming. These investments may not get the exposure they need to raise money from the crowd, even after they have been confirmed.
ICOs are more appealing than traditional assets like IPOs or other conventional assets because they rely on blockchain technology to record all transactions. This allows for the continuous updating of data in a matter of seconds.
5. High Return on Investment
The best-performing ICOs began with a small market capitalization and steadily improved it. These ICOs are unique because they offer something different and exciting to investors. NEO, also known as Antshares in China, is one example. NEO's exciting features include the following:
- Digitized cryptocurrency assets
- Peer-to-peer networking
- Secure identification
- Commerce in decentralized forms
They are also supported by large-name companies like Microsoft, making them one of the most secure and reliable ICOs.
Why ICOs Are a Popular Method to Raise Capital?
ICOs offer many advantages:
- Speed: It only takes 100 lines of code to produce an ERC-20 token based on Ethereum. Theoretically, tokens can be created and dispersed quickly.
- Liquidity: Tokens can be bought and traded on a 24/7 global market.
- No Gatekeepers: There are no gatekeepers because anyone with a bitcoin trading wallet can contribute directly to ICOs anywhere in the world.
- Ownership: Unless expressly stated in the smart contracts, tokens do not grant token holders ownership rights.
- Community: ICOs are a fantastic method to entice early adopters and link the success of your early users to their support.
- Low Red Tape: Depending on the regulatory status of your token, the amount of paperwork and disclosure requirements may be minimal.
ICOs offer many benefits of blockchain, but they are challenging to do. Your project will be subject to scrutiny by regulators and the crypto community. This article will overview what it takes to pull off a successful ICO:
Cons of ICO
1. Volatile
Due to the competition in the market, many blockchain technologies can be subject to changes. Due to the numerous variables that could impact them, investors should anticipate quick price adjustments for their assets. This could be an exciting task or a challenging situation.
2. A Potential Fraud
An ICO's biggest drawback is that investors must carefully review the profiles of team members to determine if they have the technology and customer experience to support their claims. Investors must be better informed about the difference between a good and a fraudulent ICO.
Unlike IPOs or other traditional assets, many ICOs are not subject to the same regulatory requirements. This increases their availability and ease of acquisition, but it also exposes them to fraud and other dishonest tactics that could help criminal businesses extort money.
3. Accountability May be Lacking
Many initial coin offerings (ICOs) result from young businesses or private institutions needing more resources to finance their potential initiatives. High returns on investments are what investors can anticipate. Still, they must be assured that they will produce the expected outcomes. Investors might receive something different than what was anticipated.
Investors are encouraged to investigate all aspects of the company before deciding on which ICO they want to invest in. This includes their reputation, key employees, and the success of previous projects.
How does ICO Work?
A complex initial coin offering entire process requires a deep understanding of finance and technology. The aim behind ICOs is to employ decentralized blockchain networks made possible by blockchain technology, such as decentralized cryptocurrency exchanges, in capital-raising attempts to bring together various stakeholders. These are the steps required to create an ICO:
Identifying Your Investment Goals
Each ICO starts with a company wanting to raise funds. The company decides the target audience and prepares all the materials necessary for potential investors to learn about the company or the project.
Tokens Can be Made
The creation of tokens is the next phase of an initial coin offering. The tokens can be considered digital assets or services represented on the blockchain. Tokens are fungible and tradable. Tokens should not be confused with cryptocurrencies because they are simply adaptations to current ones. The tickets are not a stock that gives you an equity stake in a company. Most tokens give their owners a share in company-created products or blockchain development services.
Blockchain platforms have been mentioned as the platform that creates tokens. It is easy to create tickets, as unlike making new money, a corporation doesn't need to start building code. Tokens can be created by making minor code changes on current blockchain unregulated platforms, which power existing currencies like Ethereum.
Read More: How to Start an Initial Coin Offering: A Complete Guide (ICO)
Promotional Campaign
A corporation usually undertakes a promotion campaign to attract potential investors. To reach as many investors as possible, most promotions are conducted online. Currently, ICO advertising is prohibited on several significant web properties, including Facebook and Google.
Initial Public Offering
After the tokens have been created, investors can then purchase them. The offering could be split into multiple rounds. The company can then use the ICO money for a new product/service. Investors can use the tokens purchased to access the product/service or wait for their value to appreciate.
We now know the basics of an Initial Coin Offering. Let's see how a company can launch its ICO.
How Can One Launch Their Very Own ICO?
You may launch your own ICO quickly by creating a cryptocurrency token and selecting a launch date. Raising money is only one aspect of the ICO process. There are other additional elements at play. Making a cryptocurrency project or cryptocurrency launch process that people want to support is essential.
You must decide how your new cryptocurrency fits into the project as well. During the ICO process, you'll also need the following:
- A document that outlines the goals and objectives of your project.
- A strategy that outlines both immediate and long-term objectives.
- Market research for other ICOs
- Website and social media presence
- Public relations campaign
An ICO is a complex undertaking that requires a dedicated team. You can form your own team or work with an ICO company specializing in these types.
Initial Coin Offering Examples
Let's look at the most lucrative and inspiring ICO results now that we understand what Initial Coin Offering is.
Filecoin
Filecoin, a blockchain-based information storage network, allows consumers to trade their storage and give access to their servers for Filecoin or other prizes.
Sirin Labs
In under 24 hours, Sirin Labs' ICO raised close to $100 million. This shows that investors were eager to acquire the particular coin. The initial coin offering raised $57.8 million in digital tokens over the course of the next eight days. The sum now stands at $157.8 million.
Bancor
The cryptocurrency speculation market Bancor uses blockchain technology. With the help of this initiative, cryptocurrency owners will be able to produce liquid tokens that can be used to value themselves and exchanged for other tickets. Buying Bancor tokens that are 50% Litecoin and 50% Ether is possible.
Ethereum
Bitcoin and Ethereum are digital currencies, but they also work as the basis for decentralized apps that employ smart contracts. Ether tokens were purchased at $0.31 each during the ICO. This provides a healthy return on investment (ROI) for those who bought early.
Presale: All You Need Before the Launch
First, you must decide if an ICO is the best strategy for raising capital to support your business. The graveyard of unsuccessful ICOs can be broad and deep. Overzealous entrepreneurs may be tempted to disregard the dangers of completing a significant investment round in weeks or days.
An ICO is not the right tool for every project. First, an ICO is not just about raising capital. Before you decide on an ICO, here are some things to consider:
- Using tokens (and blockchains) can improve a product, business, or service. It goes beyond injecting capital for a short time.
- How to ensure token holders receive a fair return over the long term.
Like any business, a successful ICO is driven by a compelling use case and a product or service that customers demand. There are lots of tokens on hand. If they receive an adequate response, investors can invest in well-thought-out firms.
Read More: Pitfalls Your ICO May Fall Into and How to Avoid Them
Create a Team
An ICO project may be intricate and multifaceted. You'll need an excellent team if you want to succeed. The team behind an ICO will get the attention of investors. It is one of the best predictors of success or failure.
Select (or Build) the Best Technologies
Unsurprisingly, selecting the right technology for your ICO is crucial to successful fundraising. A token, and a blockchain are the essential technologies you need.
Blockchain: While some projects may choose to create their blockchain to host their ICO, most ICOs are run on established platforms like Ethereum. A blockchain can be a time-consuming and complex task. It is only used for projects that require a unique blockchain. These blockchains offer special features and greater flexibility but also require more time and expertise from cryptocurrency experts.
Smart Contract: A smart agreement is an engine for your ICO. It manages incoming token purchases, allows token holders to sell and transfer tokens, and connects to your token wallet. You must ensure that your smart contract is audited thoroughly to ensure it's secure and functional. Hackers will try to take money from you and investors by looking for vulnerabilities in smart contracts.
Tokens: Because tokens are code, programming them with different features is possible. Tokens may be classified as investment, utility, participation, or asset-backed. Each type of token can be subject to its legal requirements, so it is essential to understand the status of your token. These are explanations about the various types of tokens.
Infrastructure: In addition to the essential technologies required for your ICO, servers will be needed to manage your website traffic and onboard users. This can be done with automated Know Your Customer (KYC) or manually verified.
Security: Even though blockchains are pretty secure, websites and smart contracts can be attacked by hackers. Hackers and con artists may find ICOs to be lucrative targets. You will be exposed to distributed denial of service (DDoS) assaults, smart contract hacks, social phishing, and personal information breaches due to your domain name. Having top-notch security will reassure and safeguard investors. A professionally audited innovative agreement, dependable and high-quality hosting (with DNS protection), and domain monitoring for phishing will all work to ensure your project and investors.
Your Tokenomics Design
You want to balance the supply and price of your token in your ICO. If the pool is smaller, the cost per token will be dilute and low. However, suppose the supply falls below the desired level. In that case, investors may be dissatisfied with the token's high price or not want to invest. These are called the tokenomics of your ICO.
Your tokenomics should reflect the nature and price of your product/service. The supply and distribution of tokens and the allocation and distribution of permits are two critical factors to consider.
Allocation and Distribution: You will have to make many choices about how to divide and distribute your token. The initial choice is to launch an open or closed ICO or both. A small, specialized group of investors can purchase pre-mined tickets through private ICOs. This is frequently carried out in a presale event before an open ICO. Token crowdfunding is another name for public ICOs. Thanks to them, anyone can use a crypto wallet to invest in a token.
This is where a balance must be reached. Employees and early investors can control a large percentage of tokens. This could lead to a significant drop in the price of the token. Lock-up agreements will be included in many ICOs to stabilize the price for the medium to long term. Retail investors should be cautious about getting dumped if whales hold too many tokens.
Supply of Tokens: Your token will have a total (the number of tokens that are currently available), a maximum (the number that can be created/mined), and a circulating supply (the tokens currently in circulation, i.e., not locked up or burnt). The value of your token will be influenced by store and promise.
You can choose a business idea to have an inflationary or deflationary supply of your coin depending on the nature and goals of your project. A maximum pool is set for deflationary tokens like Bitcoin or bitcoin cash (BTC). However, there isn't one for inflationary tokens, which can issue new permits at any moment.
Inflationary models can cause tokens to lose value over time. However, they encourage permit holders to use the tickets. A deflationary model can increase or maintain the token's value as demand increases. However, it could also result in token-holders hoarding tokens rather than using them. It is up to you to choose a suitable model for your project.
Your Product Roadmap
Your ICO is a way to an end. Investors will be interested in learning why you are raising capital, how it will be used, and where your company is heading. Investors will need to see a detailed product roadmap to prove that your company is credible and likely to succeed.
The following should be included in the roadmap:
- Hire a copywriter to help you create a well-articulated vision for your project.
- A set of specific, measurable, and achievable milestones and goals that are SMART (specific, measurable, actionable, realistic, time-bound).
Your White Paper
White papers are a pitch for your ICO. Investors will use it as their primary source of information when researching your project. The white paper is essential in convincing investors that your project can be trusted. It should be in place before you build your cryptocurrency community or reach out to investors.
Everything mentioned should be included in your white paper, including your crypto market research, team, technology, tokenomics, and product roadmap. Refrain from skimming on graphic designers and copywriters -- the better your whitepaper looks, the better your projects will look. The Errna white paper guide provides a detailed breakdown of how to structure and write white papers.
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Ending Notes
ICOs offer investors a great way to raise funds for a blockchain-based company and give them a chance to get their money back. This blog has helped you to understand ICOs. This is a booming industry. This fascinating process is attracting more people every day.
Although there's yet to be a definitive answer to whether ICOs are worthwhile, it is clear that there have been a few successful ones. To be safe, you should take precautions before investing in an ICO.