ICO is an abbreviation for the Crypto term Initial Coin Offer. This can be seen as an alternative way of crowdfunding that originated outside the traditional financial system. This model is used for successful crypto projects and companies to make a flying start. Unfortunately, a lot of ICOs are also outright scams, losing a lot of money. In this article you will read how an ICO works, how to invest in ICOs, some resources to find out cryptocurrency news, what the risks are when investing in ICO’s and how to recognize a scam.
Starting your ICO search
1. ICO Name
2. ICO Address
3. Start Date and Time
4. First Block Number
5. Information Important to You
6. You Bid
7. Link to Instructions
8. Log in from your wallet
9. Check Cryptocurrency news websites like CCBums.com and Hackermoon for news on the project you are looking to invest in.
How does an ICO work?
As you have read above, an ICO is specifically intended to collect money to start a cryptocurrency project or business. Such an Initial Coin Offer is often a period of one month but can range from 1 day to 1 year in which it is possible for users to purchase these coins in exchange for Ether or Bitcoin for the new project. In fact, in exchange for money (in the form of BTC or ETH) you get the first crypto coins that exist for the project. But how much are those coins worth? This can be determined in 3 different ways:
- Static offer of crypto coins with static price
Some ICOs have a specific purpose or limit that they want to achieve. That means they have a fixed amount in their minds and if this is achieved, the Initial Coin Offer stops. This ensures that the crypto coins you get will hold a fixed price during the ICO and the number of crypto coins that will be “sold” during this period.
- Static offer of crypto coins with dynamic price
There are also ICOs that offer a fixed amount of coins, the price being dependent on the amount that is collected. An advantage for the founders is that there can be an infinite amount of money. In this case, the price of the tokens will be higher as more money is collected.
- Dynamic offer of crypto coins with static price
The last form is a form in which the price of the coins you get remains the same as in the 1st form. The only difference is that the supply of coins during the ICO is variable. This does not mean that you get more crypto coins as more money is fetched, but more coins are created during the ICO. For example, one extra token is created per Ether, which is retrieved.
Example: The Initial Coin Offer of Ethereum
From July 20 to September 2, 2014 (42 days), it was possible to participate in Ether’s initial coin offering. Ethereum made use of a dynamic offer of crypto coins with a static price. Eventually, the people who participated in ICO 1137 received Ether per Bitcoin (between 30 and 40 cents per Ether). The people who invested at that time and have always kept their coins don’t have to work for the time being. The Ethereum team managed to raise $ 18.5 million with this crowdfunding project. Unfortunately, they held a lot of this money in the form of Bitcoin.
How do you join an ICO?
It’s important to plan everything around the ICO well. It is still quite complicated to participate, especially if it’s your first time. In addition, for each ICO the rules and how it all works are different. It is especially important to keep your emotions well under control once the ICO starts, because you are soon likely to get dollar signs in your eyes, causing you to take irresponsible risks.
1. Make sure your Ether is in your wallet.
Also note that you also have to pay transaction fees
2. Read the instructions of the relevant ICO sales.
Depends greatly on the team behind the new cryptocoin, how easy it is to find this. Be sure to keep an eye on their Slack or Bitcoin.org channel. Here they will usually publish a “how-to” a few days before the ICO starts. Read these instructions carefully so that you will not be surprised.
What is the difference between an ICO & an IPO?
IPO stands for Initial Public Offering. This is happening in the stock market and the resemblance between an IPO and an ICO is that it comes with both the first share issue, where it comes to an ICO for the first crypto coins issue. However, in the case of shares, you are actually becoming a shareholder (co-owner) of the company for which you purchased shares. This is certainly not the case with an ICO and, therefore, it’s a bit more flexible. It can be anything you buy in the form of crypto currencies (in the case of NEO shares, you will be part owner of the blockchain of NEO-shares, but with Ether you buy only the “gas” of the Ethereumplatform). In addition, an IPO is much more regulated by banks and the government. This means there are many more restrictions, but also that there are fewer risks.
Investing in an ICO is Risky?
Because ICOs are not yet regulated, a lot of scams occur. Many tactics are used to set up such scams so it’s very important that you do good research before you put a lot of money in an ICO. For scammers it is very easy to set up a website and create a few names that the team should be behind the cryptocoin. Often they make different accounts on forums like bitcointalk.org to get people to put money in their ICO. When these scammers get enough money in their wallet, the coin disappears and everyone who has contributed to the ICO loses money.
What should I look for when evaluating an ICO?
Most importantly, the team behind the cryptocoin should be transparent. If you can’t find the founders and developers behind the coin online, you need think twice. But if you can find them, it could still be a scam. Here is a list of questions that you can keep in order to investigate whether the ICO is safe to participate:
- Is the team behind the cryptomond transparent? Who is the founder? Who are the developers?
- Have they placed a whitepaper online? What is the currency’s plan? Is this achievable and realistic?
- Is the money managed safely? For example, is a well-secured smart contract or an ICO-coin escrow wallet used?
- Does the team respond to your questions? Do they keep the community well informed about all unwanted issues? Are they easy to reach?
- Can you safely store the crypto coins you get during the ICO? Is there already a wallet for you to hold your tokens in and does it work well?
These are 5 essential points that a good Initial Coin Offer must meet to be considered safe. Of course there are safe ICOs that don’t meet any of these points, but that’s a very rare exception. There are great risks involved when participating in an Initial Coin Offer if you can not clearly answer one or more of these questions.