What is ICO

by in Explained

What is ICO

So what does it mean?

ICO (Initial Coin Offering) - a process, during which new cryptocurrency’s coins are sold. It’s a modern format of startups’ investment, which eases the problem of monetization when an idea or project is on their development stage. Now the word “crowdsale” has become the new synonymous of ICO.

 

Why is it important (startup company CEO)

Maybe you are developing blockchain based startup or want to have a cryptocurrency? But you have some problems with investments? So this can be solved bycrowdsale. The startup goes to ICO, gives a detailed explanation of what it is going to create or has already started working on, says how much it need for the future and wait. If people and companies have understood your idea, understood that your project will make the world better and want to support you than they will invest some money (who knows, maybe millions of dollars).  

 

Why it is important (investor)

Companies and individuals, who are interested in an idea, or think that this ICO’s new cryptocurrency will rise in cost in the future, buy the tokens and wait. The main concept is that, with any luck, they can benefit from the further resale of coins at a more expensive price. Another reason can consider buying coins for the use of startup’s services cheaper than they’ll cost when the company will start working.

 

From best to best

Now manyICOs are gathering hundreds of thousands, millions of dollars. For example some ICOs, as Storj projects ($30 million in less than a week), Aragon (~ $25 million in 15 minutes), very fast reached their financial goals from the beginning of selling their coins, replenishing the list of good crowd sales.Brave browser in a half of a minute of starting its ICO campaign collected $35 million. Block.one gathered $185 million within 5 days of placing its EOS tokens. And these numbers are becoming bigger every year. As Autonomous Research LLP noted by facilities of ICO the sum of money, gathered for startups, reached $7 billion within half of the year.

Related: First ICO approved in France

ICO vs IPO

Sometimes people mix up these 2 concepts. Despite that from ICO to IPO is only one letter, differences are much more. During the IPO (Initial Public Offering) occurs the placement of not coins, but stocks. In principle, it is similar to the well-known analogical term in the economy. Investors and interested in startup or project people buy stocks and start to have a stake in the company. With the ICO, no one becomes a shareholder but acts at his own peril and risk by supporting the project, hoping to gain from it in the future. Therefore, since we are talking about the purchase of shares, which in many countries is regulated as a process of selling securities, IPO has legal regulation.

 

Legal regulation

Now it is impossible to say for sure: is ICO legal, as a way of attracting investments, or not. But it’s impossible to call it illegal, too. There is yet no country that accepted and began to regulate this process at the legislative level. This is due to the fact that ICO doesn’t sell shares and its concept is an alternative form of crowdfunding. But disputes and discussions on this question have already been going on for several years, so it is possible that sooner or later this issue will be resolved.

 

Legal regulation

Scams

Unfortunately, throughout the history of mankind in any sphere of life, there were fraudsters who appeared from nowhere, promised mountains of gold to gullible people, in exchange for a “minor” contribution, and ran away with all the money back to nowhere. Actually, cryptomarket in this regard is no different from others and is not insured at all. Moreover, it is precisely because of the problems of non-regulation of this sphere, that scams appear.

 

Another reason for falling into the trap of fraudsters is the current popularity of cryptocurrencies: prices are rising, and if some kind of coin used to cost 1 cent, now it may have risen to $100. This can also be compared with the process when in the past people went to the USA to find gold and get quickly rich. People with burning eyes are ready to invest their money in everything, just to get a huge benefit from it without moving a finger. Therefore, such confusions happen when kind investors are being used by experienced scammers.

 

One of the largest ICO scams was “organized” by Modern Tech. It managed to twist ~30.000 investors around the finger through 2 projects at once: iFan and PinCoin. As a result, Modern Tech’s guys were able to steal about $660 millions in total.

 

Over the short history of the ICO, there’ve been many big scam campaigns: one deleted all the pages of their website, leaving obscene or mocking expressions on the main pages. But now scammers have begun to be caught: for example, the creator of PlexCoin project Dominique Lacroix was recently detained and will soon be punished: a few months in prison and a small (relative to the stolen amount of money) $100,000 fine.

 

Tips for novice investors and ICOs

If you decided to have a contribution in some project, just make a mini-donation to young enthusiasts, who are trying to build a career in business and IT, then you need to beware of scams.

 

If you are young and energetic programmers or CEOs, who want to get money to implement their ideas or a serious company with a good reputation, then you need to be careful to be not considered as fraudsters and not get a refuse in investment, because every bitcoin costs (let’s don’t forget that 1 BTC costs $3800).Therefore, you should pay attention to the following aspects:

 

1. The company must have a working project website, with updated information and news

2. The website should have a white paper and a detailed description of the future or current project

3. Pay attention to the company itself: its CEO and others. It is better to have photos, links to accounts in Linkedin and other social networks

4. Had the team already successful projects? If yes, then it is an advantage. It will recommend them as experienced professionals. This is another factor that they will not run away with investors' money.

5. Availability of all relevant documents, agreements, and rules.

6. Working prototype.

 

Conclusion

You can trust to teams and companies, you can not. You can start a campaign, and it could become very successful. Just be honest with people who want to give you money, don’t make scam campaigns, read startups’ white papers carefully and don’t miss any news, regarding crypto world.