Initial Coin Offering definition states that it’s a process where start-ups offer investors some units of new crypto projects (or tokens) in exchange for funds.
Hence, ICO is an acronym that simply stands for Initial Coin Offering.
ICO investment is being used since 2013, as crowd-fund to realize seed money for marketing, promoting proof-of-concept (POC) and development of new projects.
Remember the age before computer, when there’s nothing like ICO (i.e. Initial Coin Offering).
In those days, raising money for business projects can be as hard as cracking a palm nut without hammer.
The major medium necessarily required to reach out to investors were scarce, and in that way, trust always comes in the way, when ever money is involve.
Now, being in the computer age, a lot of things are possible, especially, from the aspect of ICO projects for raising funds for industrial business ideas.
This include all other kinds of ventures that require initial funds raising.
In other words, they tend to engage in fund raising to attract a little bit of investment from interested investors.
Initially, it was all about applying for loans, or going for community bank overdrafts to gather funds for business projects.
Thanks to cryptocurrency which opened a new door of raising funds, and that which happens to be the Initial Coin Offering (ICO).
Initial coin offering being brought out of the crypto-system has its own challenges, which is more riskier than signing papers face-to-face.
ICO most times faces the challenges of fake schemes and scams, but aside that, it is a better way to raise fund than any financial institution.
Investing in cryptocurrency pre-sales are the best way to grab a potential crypto asset before its market launch.
History of Initial Coin Offerings
Matercoin being the first ICO in 2013, was able to make up to $600,000 USD in Bitcoins, after announce its inception on the bitcoin talk forum.
Just after that, Ethereum in 2014, became the next ICO that was announced in the space.
The Ethereum platform collected almost 31,500 BTC (i.e. $18.4 million dollars) from investors in exchange for ETH.
Hackers are always hunting initial coin offering websites to hijack all the investors’ money and funds.
Just like CoinDash ICO website, hackers were able to change the smart contact address of the ICO into their own.
This resulted into the loss almost $7 million of investment.
Well, when such thing happens you may suspect the insiders of the project company, but no one can be sure until it’s proven.
Initial coin offerings and the value of crypto tokens
ICO cryptocurrency is a token given to investors in exchange of other coins to fund for a new cryptocurrency project venture.
These tokens are sold out to the early backers of the project in exchange for cryptocurrencies like Bitcoin, Ethereum, Litecoin etc.
What are tokens?
Tokens are virtual objects that represents a concept physically or virtually), and there are different types of token.
How does ICO work?
There are three strategies that these projects normally follow:
Firstly: The project/DApp is promoted to a community where there are likely to be investors that will like to buy.
All information like; whitepaper, teams, road-map and developments, with the official website is also made known openly to the community.
Secondly: At this stage, when a required hype has been achieved on their proof of concept, their ICOs are then announced on the cryptocurrency forum.
They will also reveal all the information regarding the new project to lure early investors interest into patronizing the ICO market.
They also make it known to the investors how much of the ICOs will be sold and how the fund is intended to be distributed towards the whole development of a new coin.
Thirdly: As soon as the ICO stage is over, the projects coins and tokens are listed on major crypto exchanges.
This is when most of the early investors are allowed to trade in the early acquired assets.
At this stage also, the market-cap of the new cryptocurrency will still be fluctuating towards how much people value the project application and protocol.
The whole concepts mostly, is to support these DApps and protocols using cryptocurrencies or tokens.
They are designed in such a way that they’re only fuelled from their native crypto as their basic coin.
This means that with time, they may become valuable and indispensable as demand gains rise for that particular DApp protocol.
Recently, ICOs has been a very lucrative way of earning money from the cryptocurrency space, as there are almost 800 crypto-coins in the market.
It is quite fascinating how crowd-funding have actually changed into a new source of income for most crypto investors.
How to make money with ICOs
In the ICO section of the crypto-space, there is something great for everyone that is interested in following the path of investing in new projects.
Despite the fact that there are also risky challenges involve.
To make money with crypto ICO investment, you can invest as little as $50 in new DApp protocols through cryptocurrencies.
Be careful, as it’s not a safe way to earn income, because blockchains are decentralized systems with challenges and risks.
ICOs are highly unregulated, and is totally different from IPOs (Initial Protocol Offerings).
ICOs vs IPOs
|Initial Coin Offering||Initial Protocol Offering|
|Highly unregulated||Well regulated|
|Not documented with any legal agreement||Documented with legal agreements|
|Full fraudulent activities||Protected and fraud-free|
|Highly volatile||Less volatile|
|Not limited to any nationality||Limited to certain nationalities|
Challenges of ICOs
Possibly for investors, this can actually be one of the easiest ways of making money with cryptos.
These are challenges and how ICO scams work:
- Majority of the ICOs only exist as whitepapers, and not in reality.
- Not ICO is regulated, or backed by governmental laws.
- Some ICOs are pump-and-dump schemes which are used to extort money and cryptocurrencies from investors.
- ICO tokens most times doesn’t have proper wallets for storage mechanism.
- An ICO project may have good proof of concept, but lack good development team.
- Most ICOs have pre-mined tokens which are used by the owners to manipulate the market-cap and execute the pump and dump scheme.
Even though all these challenges are involve in initial coin offering, you shouldn’t be demotivated as an investor.
You simply need to do a thorough research on any project you may decide to invest in its ICO, because they’re real gems.
How to participate in ICO
1. Stay updated: Join Bitcoin forums, and follow popular crypto news websites to know what’s going on in the market.
Once you notice a new project, try and join their slack or telegram groups to find the details of how to acquire the initial coins.
2. Select wallet: Most ICOs based on Ethereum protocol, requires that you have a smart contract (ER20 or ER23) wallets in order to participate.
You also need to know the currencies that are accepted for the particular project ICO.
3. Buy the tokens: Once you have identified the best ICO for you, then go ahead and invest any amount you wish to invest.
4. Time factor: Make sure to follow-up according to your own time zone.
How to get ICO token
Since initial coin offering is one of the major passive crypto income, it will be very necessary to know how you can safely acquire an ICO token.
See the steps to purchase your first initial coin offering cryptocurrency token below:
1. Register on the project’s website
Every genuine project that uses ICO to source for fund must have an official website, where they specify what the project is all about, its goals, maximum amount of fund needed, how long the campaign will last etc.
This website is where you can register for the ICO, so beware of campaigns that don’t require any registration.
2. Buy BTC/ETH first
You will need to have major cryptocurrencies in your crypto wallet portfolio, before you can be able to get an ICO token coins.
Check out my detailed guide on how to buy cryptocurrencies with credit/debit card.
Before I forget, make sure to check the project’s whitepaper to find out the minimum amount of fund to invest.
In the whitepaper, you will get to know the currency you will be using to invest in the ICO project.
3. Transfer crypto to secure wallet
I recommend getting a wallet (like; Ledger Nano X), as they are among the best wallets for storing DApp assets.
4. Buy ICO project
Once you have prepared and provided yourself with everything stated above, you can then buy the initial coin offering campaign project.
The transaction must be made on the official website by sending your base coin to the campaign wallet address.
Once you make payment to the campaign wallet address, you will receive your ICO asset in your ERC20 wallet.
5. Safe-guard the ICO tokens
If you’re using a hardware wallet, any ERC20 token can be transferred to the device and managed through mobile wallet app.
If the token you invested in is getting that support, all you can do is download and install latest version of the official manufacturers’ firmware.
How to judge a scam or legit ICO
- Check if the ICO project is solving real life problem
- Make sure they have strong leader or CEO or Founder
- Check portfolio and history of the project
- Make sure any one of the team members are not connected to past scam
- Check the technical feasibility by taking a look at the whitepaper
- They must have open and transparent community
- Check if they identified the problem the project is solving in the whitepaper
- Check the whitepapers with other whitepapers of other ICO projects to know if they’re copied or not
- Listen to what the technical experts in bitcoin forums are saying about the project or DApp protocol
- Check their road-map and if the DApp protocol has any working demo (prototype).
Just so you know, inability to do enough analysis about a DApp project before investing in it can land you into misfortune, and other financial problems.
Final Advice: Initial Coin Offering (ICO)
Pre-ICO investment is both beneficial to the owners, and also to the investors as crowd-funding techniques to raise money for their new projects.
They’re also one of the most profitable ways to invest in the arbitration of cryptocurrencies to make heavy profit as an investor.
The Initial Coin Offering return on investment for most start-ups can be used to continue the project even after the initial stage.
There’s no ICO investment banks, so most of the funds are kept by the companies that advertise the projects.
Be very careful when you decide to invest in ICO.
Always do a thorough research on the best ICO for investment, before involving your financial asset into it.