ICO – a new way of funding



In the last couple of years, we have seen an immense increase in the number of newly founded blockchain-based companies throughout the world. Since this new technology has many potential applications, people with great ideas are entering the world of cryptocurrencies in order to make their ideas work. This is made possible by something called initial coin offering, more known by the abbreviation ICO. It is a way of collecting funds from early backers, and although it bears much resemblance to the classic initial public offering, where company stocks are put on the market, it has some key differences as well. That’s why we have prepared this overview of ICOs, where we’ll be analyzing the mechanism behind this crowdfunding platform, ways of participating, as well as pros and cons of contributing to an ICO. Stay with us and learn all you need to know!

ICO | How it works?

Much like an IPO, ICO is a way that new companies use to raise funds needed for successful continuance of business. However, instead of company stocks, during and ICO, a portion of pre-generated cryptocurrency tokens is sold to early investors in exchange for major cryptocurrencies like Bitcoin or Ethereum. Investors are hoping that once the company completes the coin sale successfully, the value of the tokens will increase dramatically, thus bringing them high revenue. In order to attract potential backers, a company creates a statement containing core idea, how to realize it, the plan for coin offering, product roadmap and such. This document, called whitepaper, also contains details about the team members, how much funds is expected to be collected through initial coin offering, partnerships, and backing of other companies etc. Basically, the whitepaper is the key for luring early backers. Prior to the official ICO, some companies tend to organize presales, often lasting for a short amount of time and bringing higher starting bonuses. Each initial coin offering has a limited duration time, during which investors deposit funds to the company’s public address. If the goal is reached within the given period, the coin sale is deemed successful, and the funds raised are kept and being used for further development. On the contrary, failing of surpassing the minimum amount set makes the token sale unsuccessful, and all the funds are being paid back to the investors. And that’s pretty much how these sales function. Now, let’s take a look at how one can join the token sale event – read on!

ICO | How to join?

In order to invest in an initial coin offering, you only have to possess a minimum amount of cryptocurrency that is supported during the coin sale. Bear in mind that majority of today’s ICOs are based on the Ethereum blockchain platform for application development, so Ether is the most used payment currency. However, this is not the rule, as many companies allow payments in other prominent cryptos such as Bitcoin or Litecoin. Depending on the time you decide to participate in an ICO, you can expect a certain amount of early-bird bonus to the coin amount you want to buy, so it’s advised to get on as soon as possible. The sole procedure of buying tokens differs none than the regular trading on cryptocurrency exchange. Simply access your wallet, choose the desired amount of funds and transfer them to the company’s public address. Based on the established exchange rate, you’ll get a specific amount of coins after the token sale is finished. Keep in mind that the so-called token release date might differ – some companies tend to distribute tokens at the moment ICO has ended, while others tend to delay a bit. This information should be present in the whitepaper, so be sure to read it carefully. And that’s pretty much it – now you know how to be a part of any coin offering event. However, the ecosystem of ICOs hides some potential threats – learn how to avoid them!

ICO | Concerns and investment guidelines

Due to the decentralized nature of cryptocurrencies, initial coin offerings have been recognized as a fantastic way of bypassing centralized institutions such as banks, who are a crucial factor in all crowdsourcing campaigns. On the other hand, due to the fact that there is no central, regulatory body supervising transactions between investors and companies organizing ICOs, scammer are lurking everywhere. This is one of the biggest concerns of ICOs – unregulated marketplace enables fraudsters to create a fake company, pump it up through social media, commence token sale and disappear with raised funds. Fortunately, due to the worldwide fame of this new funding protocol, things are about to change, as more and more countries are beginning to regulate ICO market. Creating the legal frame will surely discourage future scam attempts, as well as make order in the exploding world of token sales. All prominent global regulatory bodies, such as SEC, ASIC, FMA and others are working on guidelines for regulating crypto world, which will soon be applied.

Therefore, investors are strongly advised to do their own research on any investment opportunity they are considering. Since ICOs are often held by companies that don’t even have a working product, but only a technical white paper describing the idea that will be developed, all interested parties must be extra cautious. There are some basic guidelines for choosing a solid ICO to invest in, and we’ll give a brief overview of them. First of all, carefully read the available documentation and analyze all key aspects. Is the idea new or something that is already applied? Is the blockchain technology necessary for the product’s functionality? Is development roadmap clear and understandable? Next, do a background check the team members and advisors – check their credentials, influence in their industries and competencies. Also, analyze the structure of each cryptocurrency – avoid ones that have a huge amount of pre-mined coins and those that reserve the majority of coins to the team. And finally, check for famous backers of the project, like venture capital funds, famous businessmen, prominent companies and such. Keep your mind sharp while investing, and your investments will surely pay out. Before we wrap this article up, let’s take a look at some prominent cryptos that started out as ICOs.

ICO | Famous ICOs

To give you a grasp of how far a company that started as an ICO can go, let us present to you the most famous ICOs of today. ICONOMI, a Slovenian-based company that offers a decentralized platform for creating and managing arrays of digital currencies, raised more than 10 million dollars in their token sale event, stating more than 4000 backers. Their token is now among top 50 cryptocurrencies in the world. 8.6 million dollars in a matter of minutes was not a problem for Golem Network, a blockchain-based platform for distribution of computer power – basically, a supercomputer for hire. Ethereum was also conceived as an ICO, and managed to collect more than 14 million dollars in around 40 days. To give you the perspective, ETH tokens were sold for under 50 cents each, and today they’re worth more than 300 dollars per coin. However, in terms of the amounts raised, two token sales will be remembered – Tezos and Filecoin. Tezos, a digital commonwealth platform, raised more than 220 million dollars, while Filecon, a decentralized cloud storage platform earner more than 250 million dollars for its future development. Many ICOs ended up being successful, bringing high revenues to the early backers. However, you must be aware of the dangers of investing in such markets. Don’t risk more than you can afford to lose, and always double-think your investment decisions!

ICO | Conclusion

After this brief overview, we believe that now you have general knowledge about the exciting world of ICOs. Due to the fact that there is no need for a classic banking mechanism, fundraising through ICO is faster, cheaper and easier. However, there are some concerns about the legitimacy of ICOs, since the majority of countries still don’t have a legislative that could control the behavior in this market. Fortunately, due to their growing popularity and recognition, things are changing and ICOs are becoming safer options for investments. And that’s about it – if you want to take a part in a crowdsale, there are many online trackers, so do your own research and pick the ones you believe in. Also, stay in touch with our future posts, as we will surely be reviewing current ICOs and giving our investment recommendations!

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Author: Ben Prescott

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