What is An Initial Coin Offering (ICO)?
A first coin offering (ICO) can be described as the equivalent for cryptocurrency companies to the initial public offering (IPO). An organization looking to raise funds for the development of an app, coin or service could start an ICO as a means to raise money.
Investors who are interested can purchase the initial offering and get a brand new cryptocurrency token that is issued from the business. The token could be of significance to the service or product that the company offers or be an ownership stake in the project or company.
How does an Initial Coin Offering (ICO) How it works
When a cryptocurrency company wants to raise money via an ICO project, the initiators’ first step is to determine how they’ll arrange the currency. ICOs are structured in several different ways, such as:
Static supply and a fixed price: A company may define a particular amount of funding or a limit and that means that every token sold during the ICO is priced at a predetermined price and the total supply is predetermined.
Dynamic price and static supply A ICO could have a static supply of tokens as well as a goal of funding that is dynamic. This implies that the quantity that are raised during the ICO determines the cost per token.
Dynamic supply and fixed price Certain ICOs have a dynamic supply of tokens, but have a fixed price meaning that the amount funding received determines the quantity.
White Paper Release
In addition to arranging the ICO The crypto project typically creates a pitchbook – referred to as white papers in the world of crypto-related businesses–that can be made accessible to investors who are interested through a brand new web site dedicated to its token. The project’s promoters make use of their white paper to provide important details about the ICO:
- What is the purpose of the project
- The project’s requirements will fulfill after its completion
- How much cash the project will require?
- What is the number of virtual tokens that the founders will keep?
- What payment method (which currencies) are accepted?
How long will the ICO campaign will last?
The project will release this white paper a part of it’s ICO program, and intends to convince supporters and enthusiasts to buy certain tokens from the project. Investors typically utilize fiat or digital currencies to purchase the tokens, and it’s becoming popular for investors to purchase different forms of crypto, like Bitcoin as well as Ethereum. These tokens issued recently are identical to stock shares offered to investors in an IPO.
What happens with the Funds?
If the amount of money raised through an ICO is not the amount that is required to meet the criteria of the ICO, the funds could be returned back to investors of the project. The ICO could then be declared ineffective. If the funds requirements have been met in the stipulated period, the money is put to use in pursuit of the objectives of the project.
Who is able to launch an ICO?
Anyone is able to start an ICO. There is no regulation for cryptocurrency exchanges in the U.S. currently, anyone who has access to the right technology is able to create a cryptocurrency.
However, this lack of regulation could mean that someone can take any step to convince you that they are running an ICO and then smuggle away the funds. Out of all the sources of funding that are available, an ICO is most likely one of the easiest to setup as a fraud.
The purchase of an ICO
If you’re planning to invest into a brand new ICO that you’ve heard of be sure to conduct the research. The first step is to make sure that the people who are putting together the ICO are legitimate and accountable. After that, look into the project leaders’ past experience with blockchain and crypto. If it appears that there’s no one involved who has relevant, easily confirmed knowledge, it’s an indication of a problem.
While anyone could set up and run an ICO however, it doesn’t mean everyone has to. If you’re thinking of creating your first cryptocurrency offering you should ask yourself whether your business could significantly benefit from it.
ICO Hyping
The ICO market can create a significant amount of buzz and there are a myriad of websites where investors meet to discuss opportunities. Celebrities, entertainers and other people with a well-known presence, such as Steven Seagal also have encouraged their fans or followers to invest in new ICO.
However the SEC issued a warning to investors, stating that it’s against the law for celebrities to make use of social media platforms to promote ICOs without providing the amount of compensation they were paid.
Boxing legend Floyd Mayweather Jr. and music mogul DJ Khaled once promoted Centra Tech the ICO which brought in $30 million by the close of 2017.
Centra Tech was ultimately deemed as a fraud in the courts which led to two famous personalities settling their cases against U.S. regulatory authorities as well as three Centra Tech founders pleading guilty to ICO fraud.
Investors looking to participate in ICOs must be familiar with cryptocurrency and know the details of an ICO prior to taking part. Since ICOs aren’t regulated potential investors must take extreme care when investing.