The startups have always come up with unique ideas to raise funds to give life to their ideas. But one of the most prominent and fancied word in today’s startup us to raise funds through the ICO or the Initial Coin Offerings.
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The age-old system of fundraising includes the selling of stake to a Venture Capitalist in exchange for money. The VC invests in the company believing that the new investments will fetch higher wealth in the future than the cash they are investing right now. However, in recent times, a new craze has overtaken the age old system, wherein, the company can raise funds in a faster, transparent, and beyond demographics in a democratic way by exchanging virtual currency for the real ones.
The digital currency goliath has just woken up, and there are examples where the companies have raised over a million dollars in few seconds compare to the long process of the age-old system. This phenomenon is known as the Initial Coin Offerings. Let’s understand it in a simple way:
So, what is an ICO?
The acronym sounds similar to a known capital raising process called IPO. The term ICO refers to the Initial Coin Offerings and it involves selling a brand new cryptocurrency at discount or a token as part of raising capital. If the new currency succeeds in the market often due to speculation – just like the stock markets, the investors have made profits.
However, the major difference between IPO and ICO is that the ICO neither offers rights of ownership to the investors nor entitles the owner to cash flows like dividends. The investors in the cryptocurrency range from a college kid to venture capitalist and from a homemaker to business tycoons.
As indicated, the ICO is crowdfunding tool for startups which accepts the digital currency as against the real currency. These funding events are also known as the token sales. During the token sale period, the investors receive token in exchange for the digital currency. These tokens offer a promise of future profits to the investors. After successful completion of the token sale, the ICO tokens are available for trading on various online platforms or exchanges. Some of them have skyrocketed in last year or so and has made several rags to riches.
In the recent times, the ICOs have raised over a billion dollars and crossed the venture capital or seed funding in the history.
One big pointer is that the digital currency investment is extremely risky compared to the traditional startup investments. The digital currency frenzy is powered by the explosive growth in the Bitcoin value, each of which is worth of $15,000 at the time of writing this article. The unprecedented growth as helped introduce both professionals and fanatics to the world of Initial Coin Offerings. You can check out the current rate of Bitcoins and other cryptocurrencies along with the news doing around in the crypto world at the ICO Token News. It also provides a list of current and upcoming ICOs along with exchange information.
How does it work?
Almost all the token sale follows similar steps:
- A development team proposes a viable blockchain project.
- The team offers a white paper outlining the technical specs, revenue streams, business model, and future opportunities.
- Sometime, the team may also provide a working prototype to understand the project, however, it is not a necessary condition.
- The team starts marketing their Initial Coin Offering through social media, blogs, reviews, and other online marketing avenues.
- The team provides the fine prints of the token sale which includes information regarding the number of available tokens for distribution, price & utility of tokens, and max target amount.
- The token sale is launched and coins are distributed to the bidders.
- After successfully completing the token sales, the tokens trading is made available on the exchanges.
Successful ICO examples:
In 2016 and 2017, the ICOs have grossed over $1.5 billion. Some of the top fundraisers include:
- DAO had raised over $150 million in April 2016.
- Gnosis had raised over $13 million in April 2017.
- Status crossed $100 million marks in June 2017.
- Bancor made over $156 million in June 2017.
- Tezos raised whopping $232 million in July of 2017.
- Q tum crossed $15.5 million in March 2017.
- Waves hit the $16 million marks in June 2017.
- Filecoin raised over $250 million in August of 2017.
Taking part in the ICO
There are basically two ways to take part in the startups. Just like an IPO, you can buy the ICO tokens during the crowd sale on the Ethereum platform or you can also buy it through exchanges once they get listed.
To buy tokens during the crowd sale on the Ethereum platform, you need to have an Ethereum wallet and a balance of ether tokens. The Initial Coin Offerings are linked to a specific Ethereum address and one needs to send their Ether to receive the ICO tokens. You can send your Ether as soon as the crowd sale beings and you will receive the tokens after the end of ICO.
The successful ICO tokens make it to the Cryptocurrency exchanges and become available for trading. If you have missed the ICO during the crowd sale, then you can participate by purchasing the tokens at the market price from such exchanges.
ICO investment guide for beginners
The following text provides step-by-step instruction on how to take part in the Initial Coin Offerings on the Ethereum platform:
- Find the suitable ICO which appeals you. You can check the list of upcoming ICOs at ICO Token News Once identified, read their white paper, research on the development team, understand the future roadmap & revenue streams, and also assess the utilization of funds raised through ICO.
- You need to have an Ethereum wallet to keep your Ethers. Every ICO will provide a specific address on the Ethereum where you need to send the funds and in turn, you will receive your tokens in the Ethereum wallet. Hence, you are required to have an Ethereum Wallet.
- Once you have a wallet in place, you need to have Ethers to exchange for tokens. So the next logical step is to find the platform and register to buy the Ether. You can either purchase Ethers from cryptocurrency exchanges or a cryptocurrency marketplace.
- The purchased Ether needs to be transferred to your wallet. Your wallet will provide unique receiving address which you can utilize to receive the Ether in your wallet.
- Once your Ethers are in your wallet than you must be ready with your checklist about the ICO. The Checklist should have the name of the ICO, address to send the Ether, Start and End date, your Bid, and critical wallet information.
- Be ready for the ICO, check out blogs and channels to know the exact start time of the Initial Coin Offerings.
- Once the ICO opens, send your Ether (only the amount you want to invest) to the ICO specified address.
- After the completion of the ICO, you would receive the proportionate tokens in your Ethereum Wallet. However, in some cases, the token appearance may take few hours to few days.
Now you have your new ICO tokens in your wallet, you can sell through exchanges or hold it in your wallet for future gains. Congratulations! You have successfully subscribed to the Initial Coin Offerings.
Keeping Track of the ICOs
The world wide web has plenty of resources to keep a tab on the current and upcoming ICOs. Following are some of the resourceful website to know about the latest and hottest happenings in the ICO world:
- The ICOTokenNews.com provides information and reviews about the past, present, and upcoming Initial Coin Offerings.
- Crypto Coin Judge provides comprehensive information regarding the trading and investing in the ICO tokens. It also provides a list of good exchanges along with reviews and guidance to buy and sell the cryptocurrency.
These two websites provide “All you need to know” information about the Initial Coin Offerings and Token Sales.
The Initial Coin Offerings have taken a big leap in recent times and are gaining popularity as we write. The surge in the bitcoin value to over $15,000 per coin is anything to go by then there is still a huge potential. This article has tried to provide a complete answer to what is ICO? How does it Works? How to buy ICO tokens? And Resources to check? We believe the beginners will find the article helpful. Happy Investing!