An Initial Coin Offering (ICO) is a process to raise start-up capital for a new cryptocurrency. Coins or tokens are offered at prices prior to trading.
Are you willing to invest your Ether or Bitcoin or even real money for a new coin in an ICO?
Initial coin offering (ICO) is an unregulated means to raise funds for a new cryptocurrency that is about to be launched. Start-ups take advantage of the ICO so they can avoid the regulated and strict process of raising capital as required by banks and venture capitalists (VC).
In an ICO activity, a certain amount of a new cryptocurrency is offered for sale to early customers of the venture. The mode of payment is often in real money, Bitcoins, or other cryptocurrencies.
The concept of an ICO is similar to that of an initial public offering (IPO). An ICO and IPO are processes that companies do in order to raise capital. ICOs in return for the investment gives tokens or coins (cryptocoin). An IPO on the other hand issues securities or stock certificates. An ICO is also referred to as an initial public coin offering.
An ICO as a form of fund-raising may come in single or multiple rounds. The tokens or coins offered increase in value as the release date nears. Those who have invested earlier have more rewards and incentives that come along with tokens or coins. ICOs end when the tokens or coins are ready to be traded in open market.
Before the start of most ICOs, a predetermined number of tokens or coins for sale are created. The initial ICO price of the tokens and coins are determined by the economy creators, the decentralized autonomous organization (DAO) or the project.
There are a good number of benefits that companies get from raising capital by means of an ICO:
An ICO can be likened to crowdfunding. Crowdfunding is raising capital outside of the financial system. A lot of successful companies and projects have been initially funded through crowdfunding. Initial coin offerings can be considered as a form of crowdfunding for cryptocurrency.
Crowdfunding and ICO are the most efficient and easiest processes that individuals and companies can use to jumpstart projects. These also give users the opportunity to invest in projects they believe have value.
Most ICOs are static. This means that the predetermined price of the token or coin will remain unchanged for the duration of the ICO. This is often the case when the ICO has a predetermined project limit or goal.
It can also be that the ICO has a static supply, but the funding goal is so dynamic to the point that tokens and coins distributed depend on the demand for them. In this case, the more funding received by the project, the price of the token or coin increases.
Conversely, when it is the supply of the token or coin that is dynamic, the ICO still remains static, but for every token or coin sold, a new one is created.
Two of the most popular new crypto currency exchanges for initial coin offerings are Poloniex and LocalBitcoin. Here is some deeper detail on both of these exchanges:
Since its inception in 2014, Poloniex has become one of the leading crypto currency exchanges in the world. Poloniex offers an incredibly secure digital environment for trading, a vast array of coins available for purchase and sale, and highly advanced technical analytics tools for informed traders. Poloniex has quickly become one of the most highly trafficked trading platforms for initial coin offerings, as the more versatile and stable exchanges cater only to a limited selection of coins.
All trades made through Poloniex work from a maker taker, volume tiered schedule for fees. What this means is that all prices are different based on whether you are the creator (seller) or taker (buyer). These charges, like all currency exchanges today, apply to all transactions performed. Taker fees are typically 0.1% to 0.25%, and maker fees are usually in the range of 0.05% to 0.15%
No fees exist on Poloniex for withdrawing currency, which is a bonus compared to other exchanges such as Coinbase or Kraken. The only cost that exists when removing coins in exchange for fiat currency is a network-required general transaction fee.
A unique tool that Poloniex has in comparison to other exchanges, especially those offering a similar variety of coins, is their live chat. This box is consistently turning over incredible user-based support and answered questions. Functioning much like a general chat room, users can write what they wish with moderation as needed.
LocalBitcoin is a very popular peer to peer crypto currency exchange, with sellers and buyers located around the world. Through LocalBitcoin, crypto enthusiasts have the capability to interact with and meet people in your geographic area to purchase and sell bitcoins and any other tradeable coin in cash. The site also accepts money through PayPal, Dwolla, and Skrill, and can also arrange bank transfers as needed.
Sellers on LocalBitcoin set their exchange rate, and the exchange takes a flat commission of 1% on sales made. To ensure high-level security on the “Craigslist of crypto,” LocalBitcoin has taken numerous precautionary measures:
In case of potential issues and errors, LocalBitcoin offers a highly-competent support system and conflict resolution group to resolve issues between sellers and buyers.
An initial coin offering is usually for a 1-week period. Some have multiple rounds and extend to over a week. Bitcoins (BTCs) and Ether (ETHs), two of the most established cryptocurrencies, are often used in exchange of the new tokens or coins. The best part of buying an ICO is you get the coins at the cheapest possible price.
Before buying new tokens or coins through an ICO, make sure to read up on cryptocurrencies. The following are ways on how to buy an ICO.
Once your purchase of an ICO is successful, you will receive an email confirmation stating your official allocation confirmation. The token or coin will then be credited to your wallet.
Make sure your purchase goes through. During the specified IPO time, huge volume of purchases are being processed at the same time. There is a tendency for your purchase to fail or be rejected even if you have sent payment or other cryptos. The email confirmation acknowledging the purchase transaction is important.
ICOs are so appealing because you are able to buy tokens or coins at the cheapest price. It also comes with some risks because you do not know if the coins or tokens will be successful. Such is also the case with crowdfunding.
At the end of the ICO, the company will announce where the token or coin will be listed. Register in any of these websites/exchanges and list your new tokens or coins. Usually, once the new crypto starts trading, its value becomes higher than the ICO price.
It is a risk to invest in an ICO. However, as they say, so is crowdfunding. Crowdfunding has grown to be a successful funding source for startups, and most of the early investors believe they have invested on a good project.
Before investing in an ICO, read and study the project’s white paper. Trust your gut feel. Whether to invest minimally or invest big time or to invest at all in ICOs is a decision you need to make when the opportunity is thrown your way.