What Are ICOsC.A. Writer
ICO is an abbreviation that means Initial Coin Offering, and it is how money is raised for a new cryptocurrency offering. It’s similar to an IPO (Initial Public Offering) when a private company decides to go public into the stock market or Exchange.
The only difference is that in an ICO the startup sells tokens on a blockchain while an IPO is selling shares. It usually takes place before the launch of a coin in the blockchain and it involves the public sale and crowd sale of a percentage of the coin’s initial supply.
ICOs are sometimes referred to as ICPOs (Initial Public Coin Offerings) or ITOs (Initial Token Offerings) or even a ‘Crypto Crowdsale’.
Many of the companies performing ICOs aren’t offering coins, but rather tokens. Tokens and coins are very different things. Coins, like Bitcoin, are a way of transferring monetary value while tokens, on the other hand, can store complex and multifaceted data streams that can be used for endless functionality.
Tokens can eventually become coins when the project ventures into creating its blockchain and migrate their tokens to the new blockchain as a coin. Thriving migration examples include Tron (TRX), Binance (BNB), Zilliqa (ZIL), which formerly existed as tokens on the Ethereum blockchain.
This unique token functions like a unit of currency that gives investors access to certain characteristics of a project run by the issuing company.
What Is The ‘WHITE PAPER’ Within An ICO?
When a cryptocurrency startup company wants to raise money through an ICO, it usually puts its plans on a “white paper” to give investors vital information. This details how the technology is hoped to work, how the tokens are designed within it, and how users could acquire and use the tokens.
A white paper shows whether the founders have thought through the project, what problem it solves, and how they mean to solve it. Importantly, it must also show how the tokens they are giving out will be used to solve the problem since you will own some in exchange for investing.
How Does An ICO Work?
- The company advertises that it will be selling the initial coin supply of its new cryptocurrency.
- Investors read the ‘white paper’ of the coin provided by the company and on that basis exchange Bitcoin, Ether, or BNB for these new coins.
- The company can then exchange your Bitcoin or BNB into normal fiat currency to spend on developing the technology, paying for costs, etc.
- If the project is a success, ie it launches and starts being adopted, then the value of the new currency rises, and investors of the ICO make a profit.
The Downside Of ICOs
As much as ICOs can be profitable it also has some high level of risk especially for those who don’t know what they are doing, this is because people invest based on what they read in the white paper.
Since investors are investing in their money in the hope of becoming rich through ICOs, some of these ICO startups can take advantage of this situation. They accumulate the money but don’t get to the work of creating the product.
They only turn the business into a profit-making enterprise. Then they just disappear.
Mycelium ICO was a particularly bad example of this. Its team members just disappeared after raising the money, and later it was reported they used the funds to pay for their vacation.
Nevertheless, in recent times we have seen projects like Wakanda Inu which was launched in Africa and was backed up by Chris Ani (the Oracle of Omaha) which did well and indeed changed the lives of both those who bought ICOs and those invested after launch.
Testimonies of generational financial freedom have been spotted everywhere by investors just in less than one week of launching and indeed the project is just starting.
Therefore investors need to know who and who is backing the project before investing in their ICOs.
What Are IDOs & IEOs
Initial DEX Offering
An Initial DEX Offering or IDO refers to the launching of a cryptocurrency on a decentralized exchange (DEX). In an IDO, a blockchain project makes a coin’s first public debut on a DEX to raise funding from retail investors.
Initial Exchange Offering
Initial Exchange Offering (IEO) is a type of initial coin offerings, done directly by cryptocurrency exchanges. Initial Exchange Offerings (IEOs), project tokens are launched and funds are raised via a centralized exchange.
IDOs have similarities with IEOs since both allow immediate trading on top of raising funds. For IEOs to occur the company with the token must be in partnership with the exchanges. Bitfinex and Latoken are examples of exchanges that offer IEOs.
Some examples of DEX (Decentralized Exchange) include Pancakeswap, Binance DEX, Uniswap, etc.
Up there in this article is what is going on in the crypto space and how new tokens are being introduced into the crypto market.
Understanding this will help you invest well in new tokens being launched or about to be launched.