ICO is a relatively new form of investment, the appearance of which is associated with the development of cryptocurrency. The term itself is an acronym for Initial Coin Offering. The literal translation is “the primary placement of coins” or “coin primary offer”.
If you are interested in investment and cryptocurrency, you’ve probably already encountered this term. Speaking in simple words, the ICO is a cryptocurrency crowdfunding, that is, the collection of money for something on the side. Often participate in ICO projects, which are somehow connected with the technology of the blockchain and cryptocurrency.
Between IPOs, IPOs, and ICO has a lot in common. The main difference is that investors in the IPO to acquire securities (shares) for the Fiat currency, and in the case of ICO as a stock supports the local currency of the project token. The main task of the initiators of the cryptocurrency crowdfunding is to sell more number of tokens. Rather, to sell a sufficient number of coins to develop your project. Their real value is uncertain until the release of the project on the stock exchange.
Buying side, there are investors in the future will be able to use tokens startups to receive services, services or items provided in ICO. Or even receive dividends or sell tokens, in the case of the project to the exchange and further growth of value.
What is ICO: a detailed analysis
ICO, presenting a form of attraction of investments in cryptocurrency projects, has no regulatory framework. This means that the initiator of the primary monetary accommodation can be any legal or physical person. However, no audits and inspections the project does not pass. Almost all work is done online.
The main value of ICO is a good idea. Is to implement some of the ideas/projects and collection of investment. The procedure usually has several stages:
- A preliminary announcement. The initiators ICO telling the public in General terms his idea. At this stage it only exists on paper or even in the minds of the startup team. “Detectable” level of interest of investors to the project, provides answers to basic questions. Announcements are conducted in the electronic media, social networks, and conferences. There is an ongoing discussion among investors and authors of the idea.
- Offer. This is the offer of cooperation. In the case of the ICO investment. Despite the freedom of form ICO and the lack of regulation, it should be attached to any entity. It is from his name and received offer. Announced the implementation of the ideas needed for this amount, issue of tokens. For this purpose a separate website or presentation. Sometimes pre-closed the sale of tokens. In this way the investments are going for the official launch.
- Marketing campaign. When you run ICO almost ready, starts to spin advertising “flywheel”. In contrast to the preliminary announcement, the startup is already here to tell us more about your product/service, disclose the terms of investments, goals, technical details. Are used to advertise different channels: electronic media, social networking, presentations, thematic portals.
- The start of the sales. Full launch of the sale of tokens is also called krautsalat or tokentalk. Initially, the startup offers investors to buy a token inside of its platform (the website). Later sales start on a public cryptocurrency exchanges. The output of the token-ICO-start-up in the stock exchange is a kind of proof of a solvency of the project. Although this does not always mean that it will be successful.
It’s all very reminiscent of the standard crowdfunding or venture capital investment. You invest in a startup at the stage of the embryo. To tell you the idea, announce the terms of investment. In case of success of the project, you get dividends. However, the ICO does and is not regulated by anyone and is necessarily connected with the technology of the blockchain or cryptocurrency. This does not mean that the project must deal with development in the field of Finance. Even for cheburek is possible to hold the ICO if it has something to do with the blockchain.
Most projects use smart contracts for the Ethereum platform and investment occurs in ETH, at least in other cryptocurrencies, even less in Fiat. Potential exhaust from the ICO can be 100-1000-10000 fold compared to the initial investment.
This type of crowdfunding was born recently. If the first crypto-currency Bitcoin appeared in 2008 year, the first ICO was held in 2013. the Proud title of pioneer is the project Mastercoin (now Omni). He managed to collect a respectable $ 5 million.
The emergence of ICO related to the overall promotion of the cryptocurrency and accessibility of this kind of crowdfunding. Enough to have funds (own or borrowed) the idea to initiate ICO.
Here is a list of “unwritten” rules for creating ICO:
- The rationale for investment and production of tokens;
- Disclosure of the development model of a startup and the technical aspects of work;
- The announcement of the necessary size of investments and estimated expenditure;
- The presence of beta before launch the ICO to the public could evaluate the product;
- Publicity of the project team. It is more credible third-party investors;
- Description of the mechanism of production of tokens and their value within the system;
- The use of Escrow accounts for collection of investment – that is, the use of third parties to raise capital.
And this “unwritten” rule. When placing shares on the stock exchanges, companies will have to fulfill several times more mandatory items. Even if the project adheres to the etiquette, there is no guarantee that he is not controlled by fraudsters.
Critics compare the cryptocurrency wave of crowdfunding with the boom of Internet companies in the second half of the 90s. In 2001 this led to the dotcom crisis. And between 1995 and 2001 is called the dot-com Bubble. However, the cryptocurrency boom takes place during the wider opportunities in technology.