An initial coin offering is an excellent idea for a startup that helps develop various projects based on Blockchain technology. In the initial stages, finding funds and attracting potential investors can be difficult. Even the most brilliant ideas need the proper promotion. To raise capital, you can use several different tools. ICO is an excellent tool for projects just starting their development path in the cryptocurrency market. It is also essential to learn how to buy cryptocurrencies, understand all the leading tools, and use them wisely to develop the network and attract investors.
What is an ICO?
First, you need to understand the initial coin placement and ICO history. This is equivalent to an initial public offering but is used exclusively in the cryptocurrency industry. If a startup wants to develop in the cryptocurrency market and raise funds, it is necessary to ICO launch.
How Do ICOs Work?
Interested investors can purchase a certain number of tokens issued by the startup as an initial offer. This digital asset has a specific value and is also directly related to the product or service that the company plans to implement. Crypto help can also represent a part of the shares of this company. ICOs have the following features:
- a popular way to attract investments in developing Blockchain projects;
- coins can be helpful for investors or the company itself;
- ICOs bring some profit for investors;
- to take part in the project, it is necessary to understand the basic features of its functioning.
ICOs are generally not regulated in any way. This means that when investing in a project, a thorough study and collection of information must be carried out. It is vital to stay watchful and follow the development.
Types of ICOs
If any project wants to attract investments with the help of ICO, then it is necessary to use several possible ICO types:
- Static offer and cost. In this case, startup developers set specific limits on their own. This means that the token has a fixed and predetermined value. The number of tokens is also strictly fixed.
- Static offer but the dynamic price. In this case, the final number of tokens is strictly fixed, but the cost for a particular token may change over time.
- Dynamic offer but static value. In this case, the number of tokens may change, but the proposal’s value is always the same.
Each project uses different tools that differ in their features and benefits. When planning an investment, it is essential to consider all these factors.
Benefits of ICOs
ICO has some advantages over other means of raising assets. Among the main advantages of ICOs are the following:
- High speed. It doesn’t take much time to create a simple token. Writing a simple program code is enough, and the result can be easily distributed among potential investors.
- Liquidity. Tokens are available globally with minimal effort and cost for everyone.
- Without intermediaries. To work with assets, you do not need the help of intermediaries or consultations. It is enough to have a cryptocurrency wallet.
- Ownership. Buyers do not receive ownership of the tokens, but they can use them to solve their problems.
- Communities. ICO is constantly evolving and offers new opportunities for the most profitable investments.
- Lack of bureaucracy. ICOs do not require any complicated paperwork and numerous confirmations.
At the same time, ICO is a technology that requires considering many features. The crypto market trends are constantly changing and developing, so you need to consider the opinions of other investors and startups.
Risks and Challenges of ICOs
Any ICO projects have significant risks since this market is not regulated. There is a high chance of getting scammed. That is why it is essential to consider the following risks of ICOs:
- First, you must check if the project has the features necessary to create a successful cryptocurrency business and effective token sale. You can contact the developers to find out the parts of their work.
- It is crucial to study the project roadmap and technical documentation describing the course of action for development.
- You need to check the source code and its security so that there are no risks of using assets by third parties.
- It is essential to study all the information on the site and check for errors, as they indicate possible fraud.
As a rule, new tokens are usually used for trading on a cryptocurrency exchange. If the project attracts attention, it is in high demand and safe.
Legal and Regulatory Issues Surrounding ICOs
ICO is an entirely legal action in the cryptocurrency market. At the same time, ICOs can be considered illegal if the project and its coins do not pass the particular Howey test, which cryptocurrency exchanges use to check the investment opportunities of the trading instrument provided by the company.
Successful ICO Examples
The Ethereum ICO is one of the earliest and most notable examples of initial coin offerings. During the first wave of sales, the project received more than 18 million dollars of investment. Other successful projects include Antshares, which received over $4.5 million for the first sales stage.
Dragon Coin raised over $320 million for investment during the first sale and later earned over $4 billion from the asset during the annual earnings recap. Other projects are actively trying to attract investment.
ICO vs. IPO: Differences and Similarities
An IPO is usually applied by those companies that are looking for investors. After that, all purchased shares are evenly distributed among investors. ICO collects investments by selling coins. In each case, the essence is to collect a certain amount of assets for the project’s development.
The differences are as follows. An ICO does not provide investors with a piece of company ownership. ICO participants usually make money by buying coins, but they are not direct owners. An IPO grants ownership of the acquired portion of the shares. As a rule, IPOs are used by more conservative companies and projects that do not want to take much risk. ICO usually allows you to profit from fans but is associated with high stakes and instability.
ICOs and the Future of Crowdfunding
ICO is very popular with the development of modern Blockchain startups, allowing you to sell a specific part of the tokens at the initial stages to attract the attention of investors. The future of crowdfunding still needs to be clarified, as it is popular among the traditional methods of raising capital among private investors.
The initial coin offering is a promising direction for developing young startups looking for investors. When deciding on investments, studying the project and tokenomics and carefully evaluating its prospects and legality is necessary.