ICO simply stand for an acronym – Initial Coin Offering.
It is a process where blockchain start-ups offer investors some units of their new cryptocurrency projects (or tokens) in exchange for cryptocurrency investments (i.e. other cryptocurrencies like Bitcoin or Ethereum).
ICO investments are being used since 2013 as crowd-fund to realize seed money for marketing, promoting proof-of-concept (POC) and development of new crypto-projects and/or products (mostly new coins).
Remember the age before computer, when there’s nothing like ICO Investment. 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, including all other kinds of ventures that require initial funds raising.
Similarly, new businesses are always popping up here and there, and trust me when i say that, majority of the new businesses mostly, don’t normally have all the required fund to start-up fully.
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 going to the banks to apply for loan or going for community bank overdrafts to gather funds for any business project.
However, as things evolve, and challenges keeps coming up which led to the findings of easier way to raise funds, new things keeps coming out.
Thanks to cryptocurrency which opened a new door of raising funds for big project, and that which happens to be the popular Initial Coin Offering (ICO).
Initial coin offering being brought out of the cryptosystem has its own challenges which is more riskier than when agreements are done by signing papers face-to-face.
ICO most times faces the challenges of money-making schemes and scams, but aside that, it is a great way of raising fund that is better than any financial institution.
Investing in cryptocurrency pre-sales are the best way to grab a potential crypto asset before 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.
Initial coin offering being brought into the cryptocurrency world to make fund raising easier, some very bad eggs have also attached themselves to the whole idea, which brings more problems.
What are the ICO problems?
Hackers are always hunting ICO websites to hijack all the investors’ money. Just like CoinDash ICO program official website, hackers where 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.
By the way, we just cannot go further, without discussing the ICO Meaning, and that’s why we have to take a little time to explain what ICO is all about.
What is an ICO Crypto?
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 something else (physically or virtually), or even a concept. And there are different types of token, which ICO happens to be one of them.
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. This is why Bitcoin Talk Forum Altcoin Section is so popular.
All the information such as whitepaper, teams, road-map, developments, experiences official website of the project 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 or tokens are listed on the major 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 new project application or protocol.
Now let’s talk about how ICO token works. Most of these new projects are DApps (Decentralized Applications) on the blockchain protocols.
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 cryptocurrency (that is why most ICOs are based on Ethereum ER20 as their basic coin).
This means that with time, they may become valuable and indispensable as the 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.
However, in the time of ether ICO, you will be surprised to know how much the early investors of this protocol made by buying it’s ICOs at 1 BTC (which was worth $500 then) for 2000 ETH.
Imagine having such number of Ethereum currently.
So these 2000 ETH in 2014, made a percentage increase of 88,000%, which is an outrageous profit worth more than $445,000, as at that time.
Now to make money with crypto ICO investment, you can invest as little as $50 in new DApp protocols through cryptocurrencies.
But be careful and aware, that this is not a safety way of income with cryptocurrency. Blockchain being decentralized entirely, has a lot of its own challenges and risks.
Note: ICOs are highly unregulated, and is totally different from IPOs (Initial Protocol Offerings).
ICOs vs IPOs
- Highly unregulated
- Not backed by any government law
- Not documented or have have any legal agreement
- Not fraud free
- Highly volatile in nature
- Not limited to any nationality
While IPOs are:
- Well regulated
- Backed by governmental law
- Documented with legal agreements
- Protected and free from fraudulent activities
- Less volatile
- Are not always available to every nationality
Challenges of ICOs
Possibly for investors, this can actually be one of the easiest ways of making money with cryptos. But the risk are more than what can convince anyone to invest in ICOs.
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 to investor, but you need to do a very good research on any project you may decide to invest in its ICOs, because they’re really gems.
How to participate in ICOs?
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 that are based on Ethereum protocol, requires that you have a smart contract (ER20 or ER23) wallets in order to get the early tokens.
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 secured wallet to use for acquiring the token, you should go ahead and invest any amount you may decide to buy from the owners.
4. Time Factor: ICOs are listed according to time zones. Make sure you follow up according to your own time zone to know changes with yours and their own time zone.
Always keep up with the timing to avoid missing out.
How do I get ICO Cryptocurrency?
Since investing in crypto initial coin offering can be one of the major source of passive crypto income, it will be very necessary to know how you can easily buy an ICO cryptocurrency without being scammed.
See the steps to buy your first ICO cryptocurrency 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.
Beware of ICO campaigns that don’t require any registration whatsoever.
Of course, there is still a chance that it is a fully legitimate operation, but as of late most trusted and high-profile ICOs require investors to register.
2. Buy Bitcoin or Ethereum first
Yes it’s true. 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 anonymously on CoinSwitch.
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 investment to secure wallet
If you have been visiting my blog long before now, you will know that I always advice individuals to never leave their cryptocurrency investment in an exchange, or anywhere that is not one of the best wallet that gives them access to their private keys.
4. Buy ICO cryptocurrency project
Once you have prepared and provided yourself with everything stated above, you can then proceed to buy the initial coin offering campaign project from the official website by sending your base coins to the campaign wallet address.
5. Wait to receive your ICO crypto
As soon as you have made the payment to the campaign wallet address, you should receive your ICO coin in your ERC20 wallet. If not, then you have to check and also exercise patience as most projects do experience congestion during ICO campaign.
6. Safe-guard the ICO tokens
If you’re using a hardware wallet, any ERC20 token can be transferred to the device and managed through Trust wallet. Moreover, the hardware wallet manufacturers constantly update their lists of supported cryptocurrencies.
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 that, inability to do enough analysis about a DApp protocol or project before investing in an ICO can land you into misfortune, as well as some 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.
The is no ICO investment banks so far, most of the ICO investment funds are kept by the companies that advertise their upcoming 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.