What is an ICO – All you need to know about it
What is an ICO?
We are currently living in a digitally advanced era. We first saw the onset of a digital smartwatch, then smart vehicles, and various advancements in digital marketing too. When the world moved to online platforms, the digital currency of Bitcoin was born. And in no time, we saw an advancement in digital stocks.
An ICO (Initial Coin Offering) can relatively be compared to an IPO (Initial Public Offering) but are different in 2 major ways.
- You are not going to have a stake in the future of the company
- The investor and his funding must be connected in some way to a blockchain.
Why would a Start-up Company Prefer to use an ICO to Finance itself?
The concept of an ICO is fairly new in the market, and often, the traditional method of IPO may seem safe; still, the benefits of an ICO are unbeatable:
- Withholding control: The company’s founders do not share shares of any company with an investor. Only a prospective service is sold to the investor and nothing more than that.
- Globalization: Using an ICO to procure investors will eliminate the need for negotiators and brokers, and you can immediately raise funds from any country across the world.
- Without Regulation: Taking the traditional route of raising funds may seem tedious, and the conventional bureaucracy could take months of paperwork to be completed. The ICO market operates quickly and serves its customers on a first-come basis, without the need for regulation and extensive paperwork.
So How does an ICO work?
To begin with, we will need a group of people with an idea connected to Blockchain technology. For instance, a company that will allow us to buy a token that will allow us to access a video platform in the future will be stored in a database. This is kept on a Blockchain. It may sound like a good idea or a reliable one. That depends on how the team sells it to prospective investors.
In layman’s terms, we could say that some guys start a marketing campaign and invite everyone to buy the company’s tokens.
What is an ICO token?
It could be compared to Monopoly. We buy and sell something that does not exist, but someone succeeds and fails.
An ICO token means the authorization of the initial investment. The more funds we offer, the more tokens we will get in return. With the tokens, we can purchase future services of the company or sell the token.
To better understand the topic: What is an ICO token, and how does it work?
It could be a bit unreliable to give your money if you didn’t own a part of the company, and no one would trust the company. This is where a smart contract comes into place.
What is a smart contract within an ICO?
The individuals with the video platform on the Blockchain must profess something valuable to their investors. They can be subscriptions to videos, ten percent of the company’s future earnings, or any other value or service they can provide within the platform.
The smart contract essentially refers to an official contract between the issuing company of the ICO and the holder of the ICO token. A code causes an “action” to occur if a certain “if” happens. For instance, we can say that everyone who bought the token of the video project on the Blockchain before 2021 can sell it for a fixed price in the following year. If one of the holders sends a card, the price within the contract will automatically be adjusted.
How to create a smart contract?
Several smart contracts are created on the Ethereum platform, the first smart contract issued by the forum’s creator, Vitalik Buterin. But there are additional ones like Confideal, ChainLink, BlockCAT, and others, each with their benefits and limitations.
So Why Should We Invest in ICO Tokens?
- According to the Smart Contract, one can get some advantages in the future.
- We can make more money by buying and selling as the prices of tokens increase rapidly. This works similarly to a traditional stock exchange.
How does it increase in price, and how much can the price of a token increase?
These are some pretty impressive numbers:
- One of the largest crypto projects on the market currently, IOTA started as an ICO in which each MIOTA sold for as little as $ 0.00059. The highest price a MIOTA ever had was $ 5.23, and their investment increased 8864 times!
- Another cryptocurrency named Neo performed even better. By starting with 33 cents per token, their highest price was about $157 for each coin which is 475 times its original price.
- Each Ether hit the market worth 31 cents on the dollar, and its progress has been plunging that a single coin has been worth $ 1,377. If we calculate the investment, if we would have invested $ 1 in the ICO and sold at its best price, the profit would amount to $ 4,441.
Read more: How to choose an ICO to invest in?
When we look at the numbers, it is apparent that it is a good business. Regardless, we should not haste to provide our money to every ICO that comes out in the market, there are many scams, and we must be careful not to be a victim of them.
How not to Fall for an ICO Scam?
This is an extremely important question. There is something vital to mention as the deception in the market is rampant. There are good guys, and more infrequent good guys only think about deception. Several companies raise money from investors and disappear with all the money raised without leaving any trace. They get rid of their founder’s profiles on Linkedin, their websites are unresponsive, and all other portals are fake. Even the companies that advertise and promote the project do not respond.
Old school bandits had to drive to the nearest bank wearing funny masks on their faces. These days, anyone can do exactly the same without leaving their home.
Several authorities across different countries have begun to take action to prevent this. However, they do not understand what the market is about on many occasions. The most advisable thing is that we take good care of ourselves and be alert to possible cautions.
Here is a shortlist of items that you need to stay away from:
- We must have at slightest some knowledge about who the project’s developers are and not give our money to any stranger. The team could be anonymous, but it is all about decentralization and autonomous regulation.
- The idea will not look quite good if the ROI is lower than the average. If it is likewise, then you can go ahead with it.
- You will need to check and verify websites if there is no clear roadmap. If it is a serious startup, they will work on a detailed and informative roadmap. You need to stop and think twice before you invest money.
- The team does not have any background or association with Blockchain technology. The fact that ICOs raised money so quickly generated a lot of attention from people involved in the market and those who did not know about cryptocurrencies. There is a high chance that your project might not end well if you give your project to inexperienced people.
What is a Pre-ICO?
In the crypto world, everything is possible. Did you know that we can buy a token before they are offered in the ICO? But how does this happen?
Sometimes a company needs funds for the ICO itself, such as marketing, advertising, and much more. They can organize a presale in such a situation. The price of the presale token is more affordable since it implies a greater risk for the investor, and he needs to be convinced. Usually, it is very restricted, and they run very fast. If we want to pre-buy an IPO token, we need to check the upcoming events regularly.
This may seem like an outstanding opportunity, but it is not easy to find a profitable and promising option in the market. A prevalent practice is to run the presale for a restricted number of investors, who assume the role of an angel investor in the business. Then, a company can use the money raised with the pre-ICO to carry out a better ICO process and thus acquire more money.
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