ICO - what is it?


Every person interested in cryptocurrencies has probably already heard the term ‘ICO’, but do you actually know what it stands for and how does it work? Is it worth to invest in ICO? And if the answer to this question is yes, then how should you do it and where?

What is an ICO?

Firstly, ICO (Initial Coin Offering) is a new method of crowdfunding. If there is a project that requires loads of money which producers do not have, they can ask the community interested in the project to provide funds for it via special platforms, social media or a website. Usually, it results in many one-time small donations that support the producers, enabling them to further develop and release their product. However, there are some aspects in which ICOs differ from standard crowdfunding – for example, usually instead of the money buyers can use cryptocurrencies such as Bitcoin or Ethereum, and the inherent part of an ICO is a whitepaper. Basically, it is a business plan which very often includes a detailed plan of action concerning future plans which are to lead to the completion of the project. Moreover, ICO is not as simple as just collecting the money; it involves the emission of tokens.

How does an ICO work?

So, let's imagine that there is a new startup company which wants to create a new cryptocurrency but does not have enough money for the project. After the release of whitepaper, the community can buy the project's tokens - mind the fact that it is not a standard donation, like in the case of standard crowdfunding. When tokens are sold and the company has enough money it can finally develop the project, and if the number of donations did not exceed the minimum threshold funds are being returned, thus making the ICO unsuccessful. Sooner or later most of the tokens – but not every single of them - acquired through an ICO become available on cryptocurrency exchanges, allowing you to make money by trading them.

Even though everything about ICO sounds wonderful, you have to be careful when investing. All projects involving this kind of funding are usually advertised beautifully and they assure that profits will be enormous, but sometimes it turns out that an ICO was a scam and its creators disappear with the money or just fail midway.

How to launch an ICO?

Before you even try to launch an ICO you have to find out whether it is even legal in your country. There are not so many regulations concerning cryptocurrencies, but thanks to numerous scams involving ICOs some countries such as China banned them completely, while others try to implement regulations. If there are no legal obstacles you can work on the project – the more interesting and innovative it is the better prospects for the future are. Then, since you want people to buy your tokens, it must somehow be related to the product, and profits it is associated with have to be so attractive for potential investors that they will want to finance your project. Don't overthink too much though, even too complicated name might scare people off.

If you do not want your project to be labelled as a scam, you need to be completely transparent, meaning that you want to have a good, reliable and creative team. Finding proper team members might take you some time, but it will eventually pay off. Then, you have to estimate how many of project’s tokens you are willing to sell, how much money you have to raise to be able to continue the project and how are you going to distribute the tokens. There are many options, you can hold a pre-sale, private sale or just sell the tokens to every person interested – the choice is yours. 

Now, after developing a solid plan the next step is to write a whitepaper. As was mentioned before, it is a general overview of the project and its further development, and a huge amount of people, including specialists in the field, will read it; to put it simply, the whole future of the project depends on this one document. If the whitepaper somehow even suggests that the project or its activities are shady or illegal you will lose all credibility, so you want your whitepaper to be as transparent as possible. 

 The next goal is to create a website which will attract potential investors, and this may turn out to be the most difficult step. It should include all the information people look for – such as the name of the token or your team members - without bombarding them with too many details right at the main page. It has to be designed extremely carefully and be specific at the same time; after all the difficulties you don’t want people to back out because a website does not provide enough information, looks unprofessional or fails to work on some devices. You also have to remember about safety, if someone successfully hacks your ICO site people will not trust you enough to give you their funds. After establishing your website all that is left to do is to advertise your project; the more you spend on marketing the more people will hear about you.

How to buy ICO tokens?

The majority of ICOs accept payment by other cryptocurrencies such as Bitcoin, so the first step is to acquire some of them through an exchange. Then, after transferring your crypts to a wallet you have to find a project you want to invest in. Most of the ICOs provide a detailed guide on how to buy their token and when does the sale begin, as well as the amount of time required for the company to send tokens to buyers. And again, remember about security – ICOs are frequent targets for hackers, since replacing wallet address of the company with a fake one might go unnoticed, and loses can turn out to be irreversible. Having a well-protected wallet should also be your top priority.

What is an ICO made for?

Nowadays ICOs are becoming increasingly more popular thanks to their flexibility and simple usage. They allow developers and startup companies to raise funds they need to complete their projects with the help of the community, making it a wonderful tool for the development of, well, everything; even some celebrities started to emit their own tokens for their fans who want to invest in them! Moreover, an ICO can be a way to enter the world of cryptocurrencies – if the prospect of investing in Bitcoin right from the beginning is scary, it might pay off to start with a smaller investment, such as tokens acquired by an ICO.