What is Initial Coin Offering (ICO)? What Are its Advantages & Disadvantages?

Cryptocurrency is trending in today’s world. And there are so many things that are connected to crypto, which many don’t know. So in this blog, we have come up with the topic of what is initial coin offerings.

Without much delay, let’s get into the introduction about an initial coin offering.

Initial Coin Offering (ICO)

Initial coin offering or the initial currency offering is a kind of funding that is done by using cryptocurrencies. It’s a kind of crowdfunding. A private initial coin offering that does not seek public investment is possible here.

In ICO, the cryptocurrency quantity is sold out in the form of tokens to the investors. The coins here are usually promoted as functional units of currency for the future. When the ICO reaches the funding goal, they launch the project successfully.

ICO for Startups

ICO also serves as a source of capital for startup companies. It helps the startup companies by allowing them to avoid the regulations that will prevent them from looking out for investments from some public source or some intermediaries. For example, venture capitalists’ stock exchanges, and banks, will be demanded greater scrutiny and also ask for some percentage of your profits in the future. It can be something like joint ownership. But due to the lack of proper rules and regulations and no proper enforcement of the security laws, there is a high risk for scams and fraudulent cases.

Journey of ICO and Its Popularity

The first ICO token sale was held by Mastercoin, which was conducted in July 2013. Ethereum was also part of ICO. They raised money through the token sale in the year 2014, which was a huge amount. The token sale and ICO became popular in the year 2017. There were nearly 18 websites that were tracking the ICO in May.

ICO brought out their new web browser Brave. It surprisingly generated about $35 million in a timeframe of below 30 seconds. The developer of the messenger app Kik raised around $100 million. In the ICO, the ICO coin sales are worth 10 times more as compared to the year 2016. As of the report in 2017. In November, there were like 50 offerings for a single month. The highest-grossing initial coin offering was the file coin. It raised $257 million. But initially, it was still 2% less when we check on the capital raises in the year 2017 when compared to the initial public offering of initial cash donations.

ICOs are a popular fundraising method used primarily by beginners who wish to donate products and services, often related to the cryptocurrency side and the blockchain side. Some ICOs have generated significant returns for investors. Many others have turned deceitful or failed or misbehaved.

To participate in an ICO, you will need to buy digital currency first. Also, you need to have a basic understanding of how to use wallets and trade ICOs. So investors should use a high level of caution and diligence when researching and investing in ICOs.

Now, let’s see how this initial coin offering works.

How do Initial Coin Offerings (ICO) Work?

When cryptocurrency starts to raise money through an ICO, it often creates a white paper describing what the project is about. Also the requirements for the project to complete. Once it is completed, how much money is needed, how many real tokens founders will keep, what kind of money will be accepted and the length of the ICO campaign. During the ICO campaign, Project enthusiasts and sponsors purchase additional project tokens in Fiat or digital currency. These coins are referred to by consumers as tokens. These are similar to the company’s shares sold to investors during the IPO.

If the products do not meet the minimum requirements required by the firm, the money may be returned to the sponsors. During this time, the ICO will be considered unsuccessful. When funding requirements are met within the stipulated time the funds raised are used to meet the project objectives.

Also Read: What is Stablecoin in Cryptocurrency?

Types of ICO

There are mainly two types of ICO’s:

1. Private ICO

In the case of this initial coin offering only a few investors can participate in the process. Generally only authorized investors, financial institutions and expensive people can participate in private ICOs. And the company may choose to set a minimum investment amount.

2. Public ICO

The issuance of a public first coin is a form of refund aimed at the general public. Public granting is a democratic investment because almost anyone can be an investor. However, due to regulatory issues, private ICOs become the most effective option in terms of public contributions.

The rise of cryptocurrencies and blockchain technology is helping to increase the popularity of ICOs. In 2017 more than $7 billion was raised through ICOs. In 2018, this number has almost doubled. The largest ICO to date has been made by telegram. It is a fast messaging service provider. During the private Ico, a company registered in the UK raised more than $1.7 billion.

Let’s have a look at the advantages and disadvantages of ICO.

Advantages of ICO

In IPO an investor acquires stock shares in a company in exchange for his investment. In the case of ICOs, there are no individual chairs instead. Companies that raise money through ICO offer a blockchain equivalent to a share token cryptocurrency. In most cases, investors pay for an existing popular token, such as Bitcoin or Etherium. And receive an equal number of new tokens in exchange.

It’s worth knowing how easy it is for a company to introduce an ICO to create tokens. There are also online services that provide tokens in just some seconds. Investors should be vigilant when looking for differences between shares and tokens. A token has no internal value or legal guarantees. ICO executives generate tokens according to Ico policies, accept them and distribute them according to their plans by transferring them to individual investors. Early investors in ICO are often encouraged to buy tokens in the hope that the program will succeed after its launch. If it is successful, the number of tokens they bought during the ICO will be more than the amount set during the ICO itself and they will have access to all benefits. This is the main advantage of ICO. Very high recovery power ICOs have made many investors millionaires in the year 2017.

ICO Success

There were 435 successful ICOs raising an average of $12.7 million. Thus the total amount for 2017 was $5.6 billion and the 10 largest projects increasing 25% of this figure. In addition, tokens purchased from ICOs will be returning an average of 12.8 times on investment in dollars. ICOs have come forward from many of the crypto industries and all blockchain and have brought with them challenges, risks, and unexpected opportunities. Many investors buy ICOs in the hope of making a quick and powerful return on their investment. The most successful ICOs over the past several years are the source of this hope. Because they have indeed produced very good profits. This interest in investors can also mislead people.

Disadvantages of ICO

However, because they are largely unregulated ICOs are full of fraud and fraudulent artists. They want to hunt down excessive and inexperienced investors. And since they can be controlled by financial regulators, such as the SEC funds lost due to fraud or inefficiency will never be recovered. The rise in ice or climate change during 2017 has dragged back the emergence of a series of government and non-governmental organizations. In early September 2017, the People’s Bank of China officially banned ICOs calling them anti-economic things to keep in mind to prevent ICO scams. Make sure the project engineers can clearly explain what their goals are. Successful ICOs usually have straightforward understandable white papers with clear and specific objectives.

The engineer’s investors should strive for 100% transparency in the company that introduces ICO. The legal terms and conditions are set for Ico because foreign regulators often oversee the space. It is up to the investor to ensure that any ICO is legal. Also, make sure the ICO funds are kept in an entry fund. This is a wallet that requires a lot of keys to access. This is an effective protection against fraud, especially when a third party is neutral and owns one key.

Wrapping ICO Up

The initial coin offering is a completely new thing in the world of finance and technology. The introduction of ICOs has had a major impact on fundraising initiatives. In recent years, however, regulatory authorities around the world have been unprepared for the introduction of a new form of fundraising method of managing initial coin donations which vary from country to country.

For example, the governments of China and South Korea banned ICOs. Many European countries as well as the United States and Canada are working on drafting specific rules to regulate the operation of ICOs. They have brought out rules that have already been published guidelines governing ICOs in many countries, including Australia, New Zealand, Hong Kong, and the United Arab Emirates UAE.