ICO stands for initial coin offering, this new business technique has been the hype of fintech entrepreneurs and investors. They have become the most threaded routes to funding cryptocurrency projects and a great investment opportunity since wall street. An ICO in general, is an event planned by a start-up or a migrating industry, to provide services by offering part of its unofficial digital assets (stakes or tokens) to blockchain enthusiast and proposed investors in exchange for other cryptocurrencies or fiat using a blockchain technology to solve certain fundamental/developmental problems within its business process flow.
Another term associated with ICO is crowdfunding, as it applies to the process through which an industry raises funds from the general public (investors and blockchain enthusiasts) to execute a particular project.
Several renowned cryptocurrencies sourced their funds through crowdfunding (ICO) by revealing their intentions (whitepaper) to the public and offering a compensation plan on successful implementation of the idea. This process-paved way for subsequent startup projects to easily provide solutions to blockchain related problems.
While most ICO’s are created with the aim of raising funds to startup a prospective and profiting venture, they require a substantial amount of research and technical skills to execute their project. Other industries exploit the advantage of a decentralized system (the technology on which the blockchain premise exists), and migrate from their current operational procedure to a more conducive and hassle free ledger system, which provides confidence to their potential partners and investors.
The most used platform to execute the token sales and transfer is via the Ethereum blockchain, which uses the smart contract source codes to establish a trustless relationship between the constituting parties of the contract.
However, ICO (Initial Coin Offering) and IPO (Initial Public Offering) may share the similarity of fund raising by an organization and may be similar to shares of an organization sold to investors in the later, but they differ in that while IPO’s are regulated by the SEC and have shares tradable on the security exchange. ICO’s are currently not regulated, which constitute a pivotal problem when proposed projects fold shop.
A smart contract is a set of computer codes written as an ironclad clause binding on partners to enforce the codes of conduct in a business arrangement. In other words, it simply facilitates the exchange of digital values between nodes. They run on the blockchain and minimize the risk of interference from third parties.
Smart contracts are becoming the norms with the emergence of the blockchain technology, as it provides the necessary elements needed to enforce the essential clause (codes) of an agreement between business partners and relations. These elements are missing in the conventional contracts established by human business relations, due to the fallibility and unpredictability of human emotions and constraints.
ICO’s are usually announced on cryptocurrency forums, corporate website and social media platforms. This prepares the minds of intending investors and partners of what to expect from the startup and how much return on investment (ROI) are to be paid back once the project reaches market capitalization.
ICO’s are a mix between a donation and an investment. While there are genuine startups with outstanding prospects promising legitimate returns on investments, the success is usually dependent on the development and technical crew behind the idea. Prominent and notable social figures have been seen from time to time backing up the proposal of certain projects, which in turn sends a reassuring message to intending investors.
Since the emergence of the blockchain technology and the rise in the frequency of initial coin offering campaigns, it has become pertinent for investors to carefully explore the opportunities these acclaimed startups propose and dive in ‘not head first’. This is because several projects have failed to meet up with proposed objectives by either failing to meet up with their soft cap or suddenly fold up shop midway into the development.
Elements in an ICO plan would include:
The Ethereum blockchain technology has given developers the edge to build and distribute decentralized applications based on the smart contract source codes.
Unlike Bitcoin, in the Ethereum blockchain miners work to earn the Ether, which is a cryptocurrency token used to fuel operation within the network. One advantage this source code has over its counterparts is the ability to develop decentralized applications for tokenized assets across different platforms and execute the contracts that bind on those applications.
Ethereum blockchain has been the base for all tokenized projects; as its source code is suitable to host the transactional agreements constituted in the smart contracts created. Most individuals trade their tokens for a value of Ethereum within the network. Another advantage exploited by ICO’s is the low transaction fees in the network billed by the miners operations.
A token is a fraction of the estimated worth/budget required to complete a particular blockchain project. This value can also be likened to shares in a corporation during an IPO, as they play similar roles in crowdfunding campaigns.
While there are different strategies employed by ICO’s in controlling the distribution and circulation of tokens, after a successful crowdfunding it has been a major concern to many investors willing to hold the values of their stakes for a longer period to see the value of their newly acquired digital asset take a dive due to its liquidation to other cryptocurrencies and at a cheap rate.
The world of cryptocurrency has exponentially evolved into a niche of high-tech Fintech investors, where normal citizens have challenged the crypto world to advance by many steps forward through the opportunities provided by the investment pool. The rate of acceptance of blockchain technology is jaw breaking, leaving the horizon a mark for every developer to attain.
ICO projects are constantly on the release from time to time creating a wide range of opportunity for digital asset investors to diversify their investment portfolios.
Bounty hunting is a program within an ICO that uses cost effective methods to motivate the public into buying their digital asset during sales of tokens, this includes social media campaign and project dialogues across different cryptocurrency forums. This endeavor ends with the bounty hunter getting rewards in the values of the digital asset (tokens) for promoting the objectives and ideals of the ICO.
Some ICO’s have employed to use of presale strategy to stir up the interest of investors, in order to prepare their minds for the upcoming project and also as a means to half-fund the campaign, halfway into development in the order of the timeline/roadmap.
Accompanying the presale period is an energetic phased of the entire plan where investors are encouraged and prompted to buy-in to the startup. Some of the funds raised during the presale period may be used to boost the charisma of developers and buffer the unseen occurrences down the roadmap. Often times, they are just used to increase campaign programs. While initial coin offering sales proper funds the remainder of the project.