What Is an ICO? [A Beginner-Friendly Guide]
Updated · Oct 16, 2022
Cryptocurrencies are becoming more integrated into society and everyday life. Their economic development brings them closer to more familiar traditional monetary systems. The ICO, crypto’s equivalent of the Initial Public Offering (IPO), is already functioning, but what is an ICO?
What Is an ICO?
An Initial Coin Offering is a method for crypto companies to amass capital for their projects. And in return, they receive a certain number of tokens. Investors are motivated by the possibility of the currency gaining value, thus securing a good return on investment.
How Does an ICO Work?
Coin launch campaigns organize the sale of ICO tokens in three different ways.
Static Supply and Static Price
The company issuing the ICO for crypto offers a set amount of tokens at a fixed price. As such, the investors know the available number. They also know that the price will remain unchanged during the operation. Lastly, the company knows how much profit it will make.
Static Supply and Dynamic Price
This method supports companies with open funding goals or unpredictable projected costs. By releasing a set number of tokens, the sale’s performance and the projected expenses affect the ICO token price. Usually, if it performs well, the price will increase to secure the highest possible capital.
Dynamic Supply and Static Price
It functions much like the previous example. But instead of the supply affecting the price, the price affects the number of tokens that get released. If the initial token offering company is nearing its goal, it may lower the supply to keep the token price high and in demand.
If you are interested in learning more, check our article on buying cryptocurrencies.
How To Launch an ICO?
Practically anyone who has the technology to produce cryptocurrencies may issue an ICO, as long as it is not in direct conflict with local juridical regulations.
What is a White Paper?
Every project has to start somewhere. First, think about your ideas, goals, and aspirations. How will you turn them into reality? Collect your thoughts and write them down. This White Paper will be the basis of your ICO crypto strategy.
Crowdfunding ICOs can often be considered untrustworthy endeavors as there is a high chance of them being a scam. If you want to stand out and be more convincing to investors, you should make sure that your White Paper is well-written, properly structured, and grounded in reality. All described goals must explain how they expect to achieve them and how long they will take. In doing so, you can convince investors of your project’s integrity and your competency in seeing it through.
Research Potential Juridical Issues
China bans ICOs. As such, it's best to find another way to raise capital for your company there. While in the US and most of Europe, the coin public offering legitimacy is somewhat gray. So, once you have put your ideas to paper, contact a lawyer specializing in trade law. This way, you can avoid any legal issues.
Check Who’s Who in Your Field
For your project to be successful, it should serve a unique niche on the market. Find a problem no one has decided to solve and work on it. This way, you will be sure that there will be no competition, especially no big players who would enter in direct rivalry with you.
In case your idea is not unique, do not falter. See how the competition has decided to solve the issue. There is always something to improve, or you may even develop a radically different way to solve the same issue. Carrying water buckets and irrigation channels solves the same problem. One just solves it much more efficiently by thinking out of the box or bucket, in this case.
Release your Token to the World
Once prepared, create your ICO token and release it to the public. While this topic deserves an article on its own, we will try to keep it short. You first need to opt for an existing blockchain technology or create your own.
Then you should create a website or some other means of informing people of your ICO. You should, of course, have a crypto wallet already set up. You should also ensure that you have the methodology to receive/send your coin and others.
Sustain Your Project
There is no better proof of a concept than to see it grow. Best to keep your ICO coin offering working for at least a month. This way, you will know that you have started moving in the right direction.
To achieve this goal, share your White Paper with your audience. Constantly keep in contact with your current and potential investors, answering their questions and clarifying any ambiguity. With some luck and some work, you will keep the project running.
Release Your Token on Crypto Exchanges
After the project has run for a reasonable time, you should have managed to put a few tokens in circulation. Now you can release them on the major cryptocurrency exchanges to let them gain value. Stay in contact with your investors. Keep on releasing new information on your project. If all of the stars align, you might release the new Bitcoin.
Examples of an ICO
Through the years, some extremely successful ICOs have sprung up. Here is a shortlist of some of the more memorable examples.
- Ethereum – When it comes to successful ICO investing, not many can boast of this coin’s success. It initially sold for $0.31 and reached a price of over $3,000.
- NXT – Even though it is not trending today, the company successfully collected over $16,000 in Bitcoin.
- Particl – Particl’s ICO aimed to fund an anonymous marketplace. Initially trading for $1.50, the token managed to reach prices of over $50.
- Stratis – Their coin offering managed to successfully collect the funds needed to finance a platform for the development and maintenance of software products.
- NEO – Contrary to all expectations, this is a successful Chinese ICO project. Implemented before China’s ban and supported by both Microsoft and the Chinese government, it was one of the most successful ICO projects.
ICO vs. IPO
Considering that the ICO practice originated from the Initial Public Offering practice, It is only natural to compare the two.
An ICO is the sale of digital currency tokens in exchange for funding. These tokens may or may not increase in value through the extent of the project. Theoretically, the company is free to issue as many as they wish, though that may negatively affect its price. Currently, there is little to no regulation when it comes to ICOs.
An IPO is a sale of securities to the public. These could be stocks, bonds, warrants, or others. Before issuing securities, a company consults with investment banks on its value and possible returns. There are strict regulations governing IPOs, making them more secure for investors.
Pros and Cons
Let's dig into the good and bad about it.
- Security - Only security tokens offer some form of protection for buyers. And only business specialists can buy them - everyone else has to take the risk.
- Accessibility – Anyone can decide to buy tokens from a coin public offering. This is a problem for both the company and the investors, as inexperienced investors may have difficulty reaching project expectations.
- Mainly Unregulated – practically anyone can start an ICO. This means that con artists have a high chance of finding their way to naive investors.
- Volatility – The price of a token may drastically change a few times in the same day. The window for selling can be relatively short.
- Accessibility – while listed as a con, it also has its pluses. Anyone with a few spare bucks in his pocket can try their luck at funding the next big thing.
- Quick Returns – while a traditional stock may take years to develop, a successful cryptocurrency can multiply its worth several times over a few days.
- Independence – there are no banks and no mediators. Your money is yours, controlled by you, and no one else has access to it. That is unless you intentionally or unintentionally depart with it.
- Infallibility – blockchain makes it nearly impossible for fake currency to enter the market. All origins and transactions are accounted for and are publicly accessible.
Crowdfunding ICOs is a good way for new and settled companies to acquire additional capital. They are also potent investments for investors looking for a quick turnaround. You should be careful when planning investments. Research the company, the people behind it, and their ideas. If all checks out, why not give it a shot.
If you are interested in learning more about cryptocurrencies, check out this article full of interesting crypto statistics.
Is Bitcoin an ICO?
ICO is the practice of selling digital currencies to amass capital for a project. Bitcoin is a cryptocurrency.
Is an ICO legal in the US?
ICO legality in the US has yet to be determined. There are no specific laws regulating it. Still, legislation is constantly changing. Consult with a juridical specialist before deciding to partake in this activity.
How do I invest in a crypto ICO?
First, you should familiarize yourself with cryptocurrency concepts. Learn what an ICO is, what Blockchain is, what cryptocurrencies are, and how to use them. Once you are secure in your familiarity with these concepts, identify and research companies currently issuing ICOs. This can be done on TOP ICO List, ICO Watch List, Smith and Crown.
Is an ICO a security?
No government or financial body regulates tokens issued through an ICO. For all intents and purposes, they are just cryptocurrencies sold to investors. They hold no interest, no quarterly returns, or anything else one expects from standard-issued securities.
Deyan has been fascinated by technology his whole life. From the first Tetris game all the way to Falcon Heavy. Working for TechJury is like a dream come true, combining both his passions – writing and technology. In his free time (which is pretty scarce, thanks to his three kids), Deyan enjoys traveling and exploring new places. Always with a few chargers and a couple of gadgets in the backpack. He makes mean dizzying Island Paradise cocktails too.
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