A company looking to raise money to create a new coin, app, or service launches an ICO as a way to raise funds. The ICO concept is explained here.
We are fortunate to be living in the digital age. We started with a digital watch, then moved on to digital photography, digital television, digital marketing, and finally digital sex.
Bitcoin was born when the world was ready for digital cash. So it’s no surprise that digital stock has joined the party in such a short period.
With two significant differences, the ICO (Initial Coin Offering) is quite similar to the well-known IPO (Initial Public Offering).
- You will not be a shareholder in a future corporation.
- It must be linked to a blockchain in some way.
Why would a new company prefer an initial coin offering (ICO)?
Although the concept is new, and the traditional IPO may appear to be safer, some ICO perks are simply unbeatable:
- Maintaining control: Instead of selling an investor your firm, you sell him a future service. That’s a significant difference; you’ll get the money while maintaining control of your company.
- Globalization: whereas some businesses walk door to door to solicit investors, an ICO allows you to raise funds from anyone in any country on the planet.
- 3.There are no rules. That implies there will be no lengthy bureaucracy. Being the first on the market is crucial to a tech startup’s success. Otherwise, you’ll be forgotten about, and someone else will win the lottery.
How does an initial coin offering (ICO) work?
First and foremost, we’ll need a group of people who have a cool idea that is somehow linked to a blockchain. For instance, a firm that will let you buy a genetically modified tree and have your name written on its leaves when it grows for a Bitcoin. Sounds crazy, but I’ve heard of even stranger ideas that have evolved into great businesses.
These individuals launch a marketing campaign in which they invite everyone to purchase tokens.
What is an initial coin offering (ICO) token?
It’s neither a racecar nor a sneaker. However, it may appear to be quite similar to Monopoly. Someone wins and someone loses when you buy and sell something that doesn’t exist.
The ICO token is essentially a representation of your investment in a firm. You will receive more tokens in exchange for more money you give. You will be able to acquire future corporate services or just sell tokens using the tokens.
But, as it works in an IPO, why would you provide the money if you won’t own a piece of the company? No one will be sure. It’s for this reason that you have a smart contract.
What is an Initial Coin Offering (ICO) Smart Contract?
The guys with the strange genetic trees must entice investors with something worthwhile. It may be a free tree for your wife, 2% of future company sales, or anything else of value or service. Money might certainly grow on trees in this instance.
A smart contract is a contract between the ICO’s issuing entity and the token owner. It’s a code that causes a specific “then” to occur if a specific “if” occurs.
For example, it may state that anyone who purchased “the genetic tree” token before 2020 will be able to sell it at a set price. When a token is sent by a holder, the price is automatically updated.
What is a smart contract and how do you make one?
The Ethereum platform is still used for the majority of them (the first smart contract was issued by the platform creator, Vitalik Buterin).
Confideal, ChainLink, BlockCAT, and other programs are among them. Each has its own set of advantages and disadvantages. You can learn more about them by clicking here.
So, what are the benefits of investing in ICO tokens?
- According to the smart contract, one can receive certain benefits in the future.
- The price of the tokens can grow quickly, allowing you to profit by buying and selling at the right time. This section resembles that of a traditional stock exchange.
Okay, we get it; it’s a stock exchange based on Bitcoin. Instead of Apple or Intel, I may invest in strange trees. What’s all the hullabaloo about it?
Here’s a list of some eye-popping figures:
- The tokens were first distributed in June 2016 with an initial price of $1.183 by Plutus, a Bitcoin easy-pay app. The current token price is $15.122, representing an increase of 1,178 percent! With the price, you could buy a lot of it.
- Another cryptocurrency, Neo, performed much better. They began with a token price of 33 cents. And it’s now worth $107. You are free to compute the profit on your own. I’m in the middle of a self-flagellation for not purchasing it.
- Ethereum token holders earn a daily return of 206%.
Isn’t it a great deal, though?
How to avoid becoming a victim of a Ponzi scheme initial coin offering (ICO)?
That is an excellent question. There is one thing to keep in mind: everyone lies (special thanks to Dr. House for the perfect quote).
There are good guys and bad guys in our world. Condido, a start-up, raised $375,000 and then disappeared with it. Their website was taken down, and the founders are nowhere to be located.
Old-fashioned bank robbers, on the other hand, had to drive to the nearest bank while wearing ridiculous pantyhose on their faces. You may do the same thing nowadays without even leaving your house.
Here’s a quick list of things to avoid:
The members of the team are not identified. It’s all about decentralization and a lack of regulation. Would you, on the other hand, donate your money to a complete stranger? At the very least, I’d like to know who the founders are.
Keep in mind that the free cheese is only available to a second mouse. If the revenue proportion is significantly higher than the average, there must be a compelling cause. Otherwise, this cheese does not have a pleasant odour.
There is no clear path to follow. If it’s a serious startup, they’ll work on a thorough plan for the following year at the very least.
You should surely consider twice if all you can read on their website is “it will be cool, really cool, supercool – trust us and give us your money.”
What is an Initial Coin Offering (ICO)?
Wait a minute. There’s one more thing I failed to mention: the tokens are available for purchase prior to the ICO. Why is it, you might wonder? You know, it’s a crypto world, so everything is possible. Nothing is real; Neo should follow the white rabbit.
In fact, a corporation may require funding for the ICO itself (advertising etc.) They can say “sell before sale” in that situation.
Because the pre-sale token price is lower, it can be a great deal. It is usually quite limited and can be completed in a matter of seconds. So, if you want to buy on pre-sale, you must constantly monitor impending events.
Pre-sales may appear to be low-hanging fruit, but they are difficult to achieve. A common technique is to hold a pre-sale for a select group of investors who act as business angels.
As a result, a firm can leverage the funds raised during the pre-ICO to generate significantly more funds during the ICO itself.