ICO – A Digital Equivalent of Going Public

ICO, short for Initial Coin Offering, is a term derived from the acronym IPO (Initial Public Offering), which means a company goes public, and in this case is used to raise funds in digital currency.

ICO is a token-financing activity on a common blockchain platform. It is a fintech fundraising operation by which a company in need of financing issues tokens, to which investors subscribe in cryptocurrencies.

These tokens are issued in order to give them access to the products or services of this company in the future. Therefore, in order to raise the value through ICO, a company must issue tokens on a dedicated platform.

Issued tokens allow their owners to either receive a portion of the profits generated by the company, such as a dividend with a share or to use it to get the company’s services.

The purpose

ICO was originally used to finance new forms of blockchain platforms, and this is exactly how Ethereum was created.

Now ICOs mostly mean the way to raise funds to finance any project in exchange for tokens issued for the occasion and the promise that such tokens will have a specific purpose.

With the help of ICO, blockchain startups can collect large sums of money in just a few days or even hours.

The principle on which everything works is that investors can participate in financing the project by generally investing in digital assets, and in return they receive tokens.

In the most relevant cases, it is a matter of creating a decentralized application based on a new token. Today, ICOs are mainly based on the Ethereum smart contract, most often built on the ERC20 standard model.

The process

When the project is published on the platform, the company promotes it in the community. In order to obtain tokens, interested investors then pay cryptocurrencies, most often ether or bitcoin.

Investing in a public token offering includes risks of losing invested capital. As with any type of investment, no guarantee is given as to the resale or exchange of these tokens as to their value. Therefore, it is very important to keep in mind that the value of the token can vary.

If you are a future user of the product that the company wants to design, redistributed tokens generally give access to the product or benefits in its use.

Due to its speculative nature, the sale of ICO reaches a smaller number of investors and takes place at a fixed price. Based on that, it can be assumed that these investors will offer the token at a higher price compared to the one at which they provided it.

If demand happens to be intensified, a significant capital gain can be expected. In addition, most ICOs offer promotional discounts for token buyers in a certain percentage that usually decreases over time.

Risks

Since the ICO can be initiated by a large number of entities, what is crucial before investing is to make sure that everything is as it seems or that someone is using this opportunity to raise funds from naive investors.

There are many ways to determine if an ICO is organized by malicious initiators, and one of the most important is to find out as much as possible about the project and the team developing a particular ICO – by researching and inquiring wherever possible.

The specialized cryptocurrency forums and communication channels provided by Telegram and Slack often provide answers to many questions and resolve dilemmas, and very useful information is also available on specialized analysis sites such as ICO Tracker and ICObench. In addition, it is possible to pay attention to posts on social networks that can often place orders that stole the identity of the founder of the project or created fake pages.

The strategy

What is crucial when making an investment decision is to understand the usefulness of the project, cryptocurrency, or token in which you are investing. One of the questions that can be answered by making that decision is whether blockchain technology is necessary and whether it fits in business at the moment.

Generally, as with other forms of investment, you will be advised not to invest all your assets in one ICO.

It is also important to keep in mind that an investment can be frozen for a longer or shorter period, depending on a number of factors. Some projects send tokens immediately after the ICO is completed, while others may take several months before introducing them.

It is also recommended to avoid wasting the bitcoin or ether you own by not participating in the ICO by giving your Ethereum or bitcoin address from the exchange, as there is a possibility to disable the return of the token after the ICO is over.

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