The twenty-first century is certainly a time for the digital age. Whether it is watches, TVs, or even marketing, everything is getting digital. However, the best digital invention is digital currencies, especially Bitcoin. Within a few years of the inception of cryptocurrencies, digital stocks have also joined the party. In simple terms, ICO is an acronym for Initial Coin Offering, which is almost similar to those well-structured Initial Public Offering (IPO).
However, when you look deeper, there are two major differences between IPO and ICO which is:
1. There is no offering of any stake in any type of future company.
2. When you acquire something, you should have it connected with Blockchain in one way or another.
Why ICO Is The Best Way To Finance Any Startup Company?
Using an ICO for financing is relatively new in the market. On the other hand, the pre-establish figure of IPO seems like a safer option. However, besides the new existence, ICOs still have many unbeatable benefits:
1. Control on Retention: Even after investing, the company’s founders do not share any shares of their company. What you get is a share in the future services. The main difference here is that you are getting your money without any authority to control the business.
2. Globalization: The conventional approach of going door to door to find investors has come to an end now. With ICO, you can now reach investors globally and raise funds for your money.
3. No Regulation: The best part about ICO is that there is no involvement of traditional bureaucracy to slow down the process of your work. If you are a tech startup striving to be the best, you need to be quick and efficient in your process. In such cases, ICO plays an important role in keeping up with the fast-playing market.
Working on an ICO
It all starts with a person or a group of people with any smart idea that can somehow be linked with the Blockchain. For example, the idea could be as simple as a company offering you access to a platform for video streaming in the time to come. However, for now, this video database is stored on the Blockchain. So the ideas may vary from something basic to a more complicated structure depending on the team selling it through ICO.
In simple words, you can understand ICO as a marketing campaign started by a group of smart people. These founders then invite people to buy the tokens they are offering. The main motive behind ICO is to provide investors with a token that they can use during the initial working days of the project.
Definition Of An ICO Token
It’s mostly clear that ICO is not your regular currency. It’s more like a Monopoly. You are constantly buying and selling that doesn’t even exist in the first place. However, someone is still winning or losing here. Buying an ICO token means you are offering your initial share of contribution to any project. The number of tokens you get depends upon the money you pour into the project. With these tokens, you have access to buy any service that the company might offer in the future.
Additionally, you always have the option to sell these tokens as the project moves further in the future. However, one problem that strikes many minds is why someone would like to invest in something where they are not getting anything in return. Only a few people have trust in making such type of investment. This is where the role of a smart contract comes into the picture.
Smart Contract and ICO
The guys with the idea of a Blockchain-based video platform must offer their investors something valuable in return for their money. This return can be a subscription to their video service, a share of a percentage of the future earnings of their company, or anything they can offer from valuable assets/ services they have within their platform.
Smart contracts play the role of a mutual agreement between the token holders and the company issuing the ICO. It is code designed to perform a certain “action” when a certain condition of an “If” occurs. So, for example, the founders can say that people who bought the tokens of their Blockchain-powered video platform before 2020 can sell them back for a fixed price. Now, as any token buyer sends the tokens, the final price will be automatically adjusted as per the Contract.
Creating A Smart Contract
Creating a smart contract is no rocket science, but it does prove quite a difficult task. Luckily, many platforms offer free smart contracts for ICOs. Most of these platforms use the Ethereum platform to create Smart Contracts (the first-ever smart contract was the one issued by Vitalik Buterin). In addition, there are other options like BlockCAT, ChainLink, Confideal, and many more. However, different choices come with their level of pros and cons.
Why Investing in ICO Tokens Is A Good Choice?
When you invest in an ICO, you become eligible to access many benefits in the future as per the smart contract. As the project moves forward, the price of tokens starts increasing rapidly, and as a token holder, you can always make profits frequent buying and selling at a perfect time. This may sound somewhat common to what normally happens on the conventional stock exchanges.
Is there a limit to how much the token’s price can increase?
While there is no definite answer to this question, you can understand this concept through some examples. First, take a look at these impressive numbers of increases in token’s price in the past few years:
1. One of the majorly trending crypto projects in the present market, IOTA initially started as an ICO project. During the initial launch of its MIOTA tokens, the price of one coin was a mere $0.00059. However, throughout its years of existence in the crypto world, the highest price that MIOTA touched was $5.23, which means an 8864-time increase in initial investment.
2. There was another crypto project which did much better was NEO. In the beginning, NEO started with a normal amount of 33 percent for each token. Ultimately, the price reached an all-time high of 157 dollars for every token.
3. Similarly, when Ether came out to the market, it was worth 31 cents per coin, which rapidly reached an all-time high value of 1,377 dollars for one token. If you try to calculate the return on investment, you will be shocked to see those numbers. For example, if someone has invested $1 during the initial launch of the Ether project, then selling it at the prime time would have made them a benefit of $4,441.
After seeing these numbers for yourself, you are now in the best position to make a clear decision. First, however, do not rush into things to pour your money into any ICO that hits the crypto market. Many scams cause you to lose your money for good. So make sure to steer clear of such deals in the first place.
How To Avoid Falling For An ICO Scam?
The first thing that you need to do is to read the whitepaper. This document will state everything regarding the ICO. This is not an easy task because some of those companies don’t keep their whitepaper very well, or they put it in the wrong place. As a result, you can miss out on important things about their project. Additionally, there are more strategies that you can implement to avoid ending up with any type of fraud. A good ICO will always have a clear purpose and a vision of what they want to achieve within its platform. Just check, for example, if there is any social or political goal behind creating their company.
Here are a few things that you should steer clear of while investing in any ICO:
1. Anonymous Team: ICO and Cryptocurrency are all about the decentralized system and zero regulation. But still, there is no point in handing out your money to an anonymous person or a stranger. You should have at least some knowledge about the developers and their projects.
2. Too Good To Be True Offer: if any project or developer is offering a return on your investment that is too hard to believe, it is best to stay away from such projects. Suppose an idea seems fishy to you, then it’s best to keep your hands away from it.
3. Unclear Roadmap: If the founders of an ICO startup are serious about their performance, they will provide you with a complete roadmap for the next few years of their project. A genuine project will not praise itself through words; it will offer you a roadmap of its plans and goals shortly.
4. Inexperienced Projects: If you see that a project has started from scratch and is still in its very initial stage of a startup, then you should stay away from it. You must be careful if an ICO is offering ICO for an organization that has been around for quite some time or even has been developed through a startup.
Professional organizations generally have plenty of experience and will not offer laughable figures. When they do, in most cases, it is a foolproof indication of companies that are on the verge of failure. However, there also exist projects that have started from scratch and have had their fair share of failures. So keep your eyes open at all times and choose wisely.
What Is A Pre-ICO?
There is one more key detail to add, which is Pre-ICO. There is an option to buy tokens that are yet to be launched in the mainstream ICO. There is nothing wonderful about how it’s possible; because everything is possible in the world of Cryptocurrency.
There are many cases where a company needs to arrange funds even for their ICO (paying for tech experts, marketing the token, advertising, etc.). Such companies can announce these “sale before sale” offers. It means the developers will start selling their tokens even before launch to arrange funds for the launch of their ICO. While you may find these pre-sale tokens comparatively cheaper, the overall risk associated with such tokens is also higher. But still, these pre-sale tokens tend to run very fast in the faster despite having a small limited quantity. If you are looking to invest in a pre-sale token, stay connected with all the latest events in the ICO world.
It is common to be intimated by this great pre-sale opportunity, but finding a profitable token is often a tough nut to crack. The secret to a successful pre-sale token launch for developers is to run it through a limited number of investors who can prove to be angels in disguise for your ICO project. Then, as a company, you can implement these funds raised through pre-sale to develop an even better ICO and, in the end, make more money from your project.