Everything You Need to Know About Initial Coin Offerings (ICO’s)

ICO is an increasingly popular term being thrown around the internet lately. But what really is an ICO, how does it work, and what are the advantages and disadvantages to participating in an ICO?

What Are ICO’s?

An Initial Coin Offering (ICO), or even Initial Pubic Coin Offering (IPCO), are essentially terms created to describe the process of crowdfunding a new cryptocurrency.

ICO’s differ from traditional IPO’s in several ways. Wherein IPO’s give participants a small piece of ownership in the company, buying into an ICO means you’re willing to exchange your money for a piece of a company’s new cryptocurrency or service. With an ICO you do not own any part of that company.

Additionally, IPO’s are government regulated while ICO’s currently have no regulation.

ICO’s are basically a modern way for blockchain-based startups and ventures to accumulate funds. Crypto enthusiasts get access to a brand new cryptocurrency with limited downside, and the companies receive crowd-funded seed money to help develop, market, and promote their product. Everyone wins.

How ICO’s Work

ICO sounds like a complex technical term, but it’s actually a simple process.

A vast majority of ICO ventures are DApps using on their own blockchain or protocol.

These DApp-based projects are designed and develop to work in a way where they can only be fueled by their own native cryptocurrency. Naturally, these native crypto coins will become more and more valuable as the demand for any specific DApp project or protocol increases.

A company announcing an ICO will have its own way of announcing the offering, but they all follow the same basic steps:

  1. The name of the company, project, cryptocurrency, and/or DApp will be announced by the company across various Bitcoin-related forums and message boards. This is where they’ll spread word about their official website, their whitepaper, goals and future plans, development and marketing staff, past experience with blockchain technology, and so on.
  2. Once the company has built enough hype around their blockchain-based proof of concept, they will then announce the launch of their initial coin offering across those same forums and marketing channels. Through the announcement of their ICO they will cover specifics surrounding their new crypto idea. They will get into things like their ICO timeline, the amount of crypto coins they will be selling through the ICO, what percentage of funds will be allocated to development or marketing, the type of currencies they are able to accept, and so on.
  3. After the launch of the ICO, the company gets to work on their project. If successful, the cryptocurrency will then be listed on all major crypto exchanges where it can be traded for other currencies. From this point onward, the cryptocurrencies market cap will continue to fluctuate in correlation to market and consumer confidence, in addition to how much true value people see in using the application.

At the time of this writing, ICO’s have worked exceptionally well for a thriving group of over 800 cryptocurrencies and counting. What was once a simple crowdfunding concept has now boomed in popularity thanks to the introduction of the ICO.

History of ICO’s

The very first ICO within the crypto world took place in August 2013, where MaterCoin ended up collecting a substantial $600 thousand in Bitcoins from contributors.

The second ICO was from the widely used Ethereum crypto coin, which in June 2014 collected 31.5 thousand BTC, which at the time was the equivalent to $18.4 million.

Benefits of Participating in ICO’s

Odds are if you’re reading this quick guide to ICO’s, then you’re probably a blockchain enthusiast wondering if participating in an ICO is right for you.

Let’s look at Ethereum as an example of ICO participants who profited immensely. At the time of Ethereum’s ICO, one whole Bitcoin was valued at around $500, which during the ICO would be exchanged for about 2,000 Ethereum tokens.

These same 2,000 Ethereum from the summer of 2014 would now be worth more than $450 thousand.

In addition, since this was one of the first ICO’s, participants didn’t need to go through any type of complicated ID or background verification checks. No one cared who you were or where you were from. As long as you had internet access and a bit of Bitcoin lying around, you could take part in this revolutionary investment approach.

Before the innovative ICO took shape, only early investors with considerable funds could invest in startup ventures, keeping a majority of the world economy out. Now because of ICO’s, anyone from any corner of the world with an internet connection and a little extra cash lying around can help fund blockchain startups with and for cryptocurrencies.

How To Take Part In ICO’s

Participating in an ICO and taking a piece of what you believe to be a promising new cryptocurrency or idea with high potential is easy. Consider the steps below.

  • Stay Informed – The first and arguably easiest step, is staying constantly updated on the state of the cryptocurrency world. Join Bitcoin and crypto forums, and following popular news sites covering the latest crypto and DApp topics. After you’ve found a new blockchain project you’re excited about, join their Telegram channel to get the finer details on their ICO. You should also follow the company on any available social media channels.
  • Choose Your Wallet – Read up on the ICO details and requirements as some ICO’s will require you use a specific crypto wallet. For example, many ICO’s launched across Ethereum’s blockchain network require their backers to use wallets that support smart contracts, which allows you to set your gas limit and price. You also need to consider the types of currencies they will accept, as some may accept traditional fiat currencies and most will only accept certain cryptocurrencies.
  • Add Funds – Add funds to your new crypto wallet. While some ICO’s have a minimum amount you’re able to invest, many will have no such requirement, and so you’re free to invest as much or little as you wish, depending on your own perception of the ICO’s potential. You want to make sure that if you’re funding with Bitcoin you add enough funds to cover any mining fees, and that you top up your wallet at least one complete day before the official ICO. This is because Bitcoin transactions can take anywhere from a few hours to several days, depending on the blockchain’s congestion.
  • Time – Because some ICO’s are complete within a few minutes, you want to ensure you’re quick, on time, and punctual to the party. Look at the ICO’s listing to find their time zone and compare it to your own time zone. Timing is essential in any ICO. Take Gnosis for instance, whose ICO finished in less than 15 minutes.