What is an ICO?
With the rise of Blockchain technology, there is a recent enthusiasm around initial coin offerings (ICOs), also known as the token sale. An ICO is basically crowdfunding that uses crypto tokens instead of traditional currency. An ICO is equivalent to an IPO (Initial Public Offering) without any layers of regulations associated. That means funding based on a team and a whitepaper.
With ICOs companies use blockchain technology to issue digital assets such as tokens or coins to the investors rather than equity stakes. A company seeking to raise money to launch a new coin or token can launch an ICO platform to raise funds. Interested investors can buy the initial coin offering to receive a token issued by the company. ICO is a type of crowdfunding where the founders aim to raise the capital or funds for blockchain-enabled services and thus can be seen as a revenue model for the crowd. The ICO founders enable a token sale when they provide tokens or coins for the investors at a discounted price or use a method of cryptocurrency airdrop.
Crowdfunding is a way of raising funds to finance a business or a project. It allows fundraisers to collect a small amount of capital from a large number of investors. It makes use of easily accessible vast networks to connect to people. Social media and crowdfunding websites help bring investors and entrepreneurs together with the potential to increase entrepreneurship.
Airdrop is a marketing stunt used by startups that involve sending tokens or coins to wallet addresses to promote a new currency. The idea comprises sending new-minted tokens or coins to thousands of digital wallet addresses to raise awareness about the new cryptocurrency. Anyone with a digital wallet can receive an airdrop, but one should always be aware of the scammers. Many fraudsters can try to steal your funds when you claim the airdrop. Make sure to check the legitimacy of the project before claiming any airdrop.
Initial coin offering vs initial public offering
In ICO, the investors gamble on the currency or the token that the value will increase over time. It doesn’t secure your ownership of the projects or the company. ICO is referred to as the creation of digital tokens or coins on a blockchain. Blockchain technology allows start-ups and existing companies to raise funds through the initial coin offering. There are no such rules and regulations for the ICOs. But this doesn’t make it less secure as to the IPOs.
IPO raises funds for companies that are becoming public and, therefore, the shares of the company’s stocks are distributed among the investors. The initial public offerings are regulated by the government bodies of their respective country and offer a high level of transparency. These offer securities in shares or any other financial securities. It involves public accredited investors’ investment by analysing the issuer information.
Types of initial coin offering
The different types of initial coin offerings are listed below:
In a private initial coin offering, only a limited number of investors can participate. The ones with a high net worth or authorised investors (associated with some financial associations or institutes) can participate in the private ICOs the company can set a minimum investment amount.
The public ICOs are a form of crowdfunding aimed at the general public. As its name suggests, it is a public offering. Almost anyone can be an investor and can participate in public ICOs.
Some key characteristics of an ICO include:
- The prices of the ICOs are usually decided by the creators of the project. The investor documents for fundraising consist of the website, a whitepaper, and some posts on the internet forums.
- The lack of regulations also means that there is no need to provide any information or identification to launch or invest in an ICO. Due to this, several ICOs request identifying information from the contributors so they can purchase tokens.
- The investor can then get a complete understanding of the project with these documents and decide whether to invest in the project or not.
- Many ICOs hold back a certain amount of tokens from the sale. This allows for the valuation of the tokens based on the price of the token multiplied by retained tokens.
- The ICOs sometimes define a maximum and minimum amount of funds to raise. If the ICO fails to reach the value, the contributors have the assurance that they will get their refund.
If you are looking for someone to set up your ICO, we can help and advise you on how to set up an initial coin offering and help in the complete development of the project.