ICO stands for Initial Coin Offering that is the initial placement of coins (tokens). During the ICO, the project team sells digital tokens. After that, tokens can be used on the project platform as an internal currency, trade on cryptocurrency exchanges or sell.
In simple terms, ICO is a pre-sale of the cryptocurrency at a price that should grow significantly in the future. That is what motivates an enormous number of people to invest in promising projects.
Fundraising for ICO is carried out using smart contracts. More frequently smart contracts generate ERC20 token standard on the Ethereum blockchain together with Waves. Cryptocurrency is an internal indexed unit of public blockchain. Tokens are a digital asset that an investor receives from a company in exchange for money that he will be able to sell in the future.
For what purpose do projects carry out ICO?
By issuing their own tokens and exchanging them for popular cryptocurrencies, the project attracts the funding needed to launch or develop. As a rule, ICO is carried out at the early stages of project exists, before the creation of their complete infrastructure. Funds raised are used to finance the final stage of development, marketing or sent to special development funds to support projects in the long term.
What attracts investors to ICO?
When purchasing tokens offered on an ICO, investors primarily expect:
• To benefit from their sale at a higher price in the future (a classic example is Ethereum, whose tokens cost less than one cent during the ICO in summer 2014, and today their price increased to $730);
• Use tokens for their intended purpose and get the claimed services at a lower price.
How to participate in an ICO?
You can buy tokens by taking information from an ICO website. Usually there is a countdown on the site, after which the address of Ethereum wallet is provided. After transferring to this address, tokens charge your Ethereum wallet (for some time). Then you need to create MyEtherWallet.
After entering the exchange, you can get these tokens and sell them, or hold tokens for a little while in anticipation of the growth rate.
There can be variety of circumstances for participation in different ICO, but in any case, they always have a step-by-step instruction.
Stages of ICO:
ICO initiators tell the public about their idea in general terms. The main goal is to reveal the level of investors’ interest in the project. Announcements are held at conferences, online magazines and social networks. There is a discussion between investors and authors of the idea.
This is a proposal for cooperation and in case of ICO – about investing. In spite of all freedom of form of ICO and lack of regulation, it must be fixed by a legal entity (company). The terms for the implementation of the idea are announced, necessary amount for this and the issue of tokens. To do this, a separate site is or presentation is created. Sometimes there is a preliminary closed sale of tokens. In this way investments are being collected for the official launch.
When almost everything is ready for the launch of ICO, advertising starts. Unlike the preliminary announcement, here the startup can already tell more about its product/service, disclose investment conditions, goals and technical details.
Start the sale
A full-fledged launch of tokens sales is also called crowdsale or token sale. Initially, the startup offers investors to purchase a token inside their platform (site). Later, sales are launched on the publicly available cryptocurrency exchanges. Access of the ICO startup token to the exchange is considered a kind of proof of the consistency of the project.
Most projects use smart contracts for the Ethereum platform, and investments are made in ETH, less often in other cryptocurrencies and even less often in fiat. The potential exhaust from ICO can be 100-1000-10000 multiples in comparison with the initial investments.
This kind of crowdfunding was born recently. If the first cryptocurrency, Bitcoin, appeared in 2008, the first ICO was held in 2013. The proud title of discoverer is the Mastercoin project (renamed into Omni). He managed to collect a solid $5 million.
The basic rules for creating ICO:
- Rational for the need for investment and release of tokens;
- Disclosure of the startup development model and technical aspects of the work;
- Announcement of the necessary size of investment and approximate cost items;
- The presence of a beta version before the launch of ICO, so that the public can evaluate the product;
- Publicity of the project team. It causes more confidence in outside investors;
- Description of the mechanism for tokens mining and their value within the system;
- Escrow account for collecting investments. That is, using a third party to raise capital.
Terms used in ICO
Pre-ICO or Pre-Sale – it is attracting of investment even before the ICO itself. During the presale, the cost of tokens is traditionally lower. The startup in this way collects additional funds for carrying out the main part of the ICO. Investors receive bonuses and discounts. PRE-ICO is not as actively advertised as the main monetary offer. Many investors consider this stage as potentially profitable for themselves. They get tokens at a low cost and then sell them as soon as the coins start trading on the exchanges. This is one of the forms of short-term investment.
CrowdSale – as already mentioned above, crowdsale is the main stage of coins sale that is ICO itself. It is used by startups themselves to increase the level of trust in their project, since with ICO potential investors may have bad associations because of abuse projects. Sales of tokens are conducted at the internal level – through the platform (site) of the startup or directly on the cryptocurrency exchanges.
Bounty – it is the reward offered by the creators of ICO for certain services. Simply put, a startup gives a person its tokens for their contribution to the development of the project. What could it be? For example, the adaptation, proofreading and preparation of ICO documentation or press releases, translations of promotional materials and other content into different languages. It can also be a project advertisement on sites, forums and social networks. Simple registration in ICO – individual projects give out a bounty even for this. Referral programs, solving technical problems, programming … For your contribution to the ICO development you will receive some number of tokens.
White Paper – it is a kind of the ICO description. It details the essence of the idea, extent to which is innovative and promising. The methods of its implementation are described – disclosed technical and marketing details of the startup. A niche and other important aspects that could be of interest to a potential investor are considered. To compile WhitePaper often hired consultants from outside. This is a kind of “brochure” and person understands the whole essence of the project after reading it.
DAO – a decentralized network created to support crowdfunding projects (ICO) on the basis of smart contracts for Ethereum. In fact, it was created as a platform, the participants of which could choose interesting projects for investment. That is ICO for ICO. The platform managed to collect 150 million dollars of investments, of which were stolen 50 million because of errors in the source code. Because of this, the Ethereum hard fork arose. The attempt to “roll back” blockchain turned into the formation of a new cryptocurrency, Ethereum Classic, as there was no consensus between the participants in the network.
Roadmap – it is the chronology of the project development. The first point of the “map” is the moment of announcement of the idea and the beginning of the collection of investments. Roadmap displays both passed stages and the scheduled ICO events, such as beginning of sales, entering the exchange or achieving a specific goal.
Jurisdiction – any ICO has jurisdiction over which it is anchored. That is, the country where the legal entity that initiated the ICO is registered. This is one of the few “legal” moments of cryptocurrency crowdfunding. ICO is associated with certain tax liabilities and reporting. The most favorable conditions are created in such jurisdictions as Singapore, Great Britain and Switzerland
In 2017, the capitalization of cryptocurrency for the first time exceeded $300 billion. This indicator allows to talk about Bitcoin and other coins as something important and global. More and more people believe that cryptocurrencies and blockchain are the future of mankind. Against this background, crowdfunding began in the form of ICO.
Investment attractiveness of ICO
How does the ICO attract investors? The answer is simple – due to its high income. Within the framework of ICO, it is realistic to get 100 and 1000 multiple profits. There are many examples of such startups – Ethereum or IOTA.
Do not throw away “industry” moments. For example, cryptocurrency guarantees anonymity. The investor puts a certain amount, which only he knows. Even in the project nobody is aware of the personal data of the depositors. After all, investments are kept in the cryptocurrency. So, it all happens quickly and anonymously. No documents or bank statements – you do not need anything.
To participate in the capital of a large company (buying at least 1 share) you have to invest a lot of money and make out a lot of documents through a broker. Everything is much more accessible in ICO. The size of the investment starts with the minimum amount. Sometimes even few dollars are enough to buy a decent number of tokens. But there is also Bounty, which makes receiving tokens conditionally free.
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