An ICO stands for Initial Coin Offering, and it’s a new special way for crypto projects to raise capital by selling their coins early. Due to this new way for start-ups to raise money it is currently unregulated compared to the stock market and gives no rights to investors or guarantees the prices to increase. So, given the risk should you invest in these coin offerings?
The two main Initial Coin Offerings are private ICO’s and public ICO’s, the benefits of both coin offerings are that no brokers are needed which cuts all the intermediaries saving money and allowing you to invest faster and easier.
Private ICO: A private ICO is where usually private companies, accredit investors and firms set a minimum investment level and invest in the coins, as such only limited amount of investors can invest making it a difficult offering to enter as the return on investment is significantly higher.
Public ICO: This is where majority of investors like myself will be participating, essentially a public ICO is a coin offering for the general public where the company offering the tokens are raising capital from the general public to fund the coins or the project they’re creating. As the cryptocurrency space grows so will regulation, therefore in the near future public ICO’s could be restricted to only accredited investors to ensure newbie investors aren’t investing their money on projects that could go under liquidation.
How Do Companies Create an ICO?
When companies create an ICO it is a complex and difficult task that require quite a few components, for example the company will needs lawyers and experts in the finance field to create a token that is legal where they’re able to leverage investors money to create a profit.
These are the main steps of creating an ICO:
- Investment targets – The company creating the ICO will need to determine what they’re creating a token for and reasoning as to why they need capital, so investors understand their project and invest with them.
- Creating the tokens – This is where the company will hire a professional developer to create their coins, this process isn’t too time consuming as you can leverage the codes from the Bitcoin and Ethereum network which is run on an existing blockchain. The tokens will then be a digital asset that can be swapped, sold and bought, depending on the popularity and connections the company has with exchanges it could be listed on a top #10 exchange.
- Promotional Marketing – When the company figures out their investment target and the coin has been created, they will promote the ICO. Usually this will be done though social-media ads, retargeting campaigns and influencer marketing to leverage an existing crypto audience.
- The ICO – Once all the steps are made the company will then allow private and public investors to invest with them, they’re able to use the funding money to create their project or use the funds to enhance their current project.
When investing into an ICO it is of critical importance to do your research to ensure you’re investing into a worthwhile project that is backed by reputable companies. A great tip is to read the companies whitepaper, so you have a general idea of when the company will be releasing new updates and advancements.