What Is ICOs? How Can Investors Take Profit From It?
22 March 2022
Cryptocurrency enthusiasts have come up with some novel methods to generate money and get projects off the ground.
An initial coin offering (ICO) was introduced in late 2017 and early 2018 when teams would sell a portion of their total token supply to raise money. As soon as these newly produced coins were posted on an exchange and made available for trade, the enthusiasm was palpable.
A cryptocurrency ICO is similar to an initial public offering (IPO) on the stock market in many respects. ICOs may be incredibly lucrative, but their lack of regulation makes them extremely dangerous. Learn more about ICOs, including how they function and famous instances in this bePAY’s post.
What Is ICO And How Does It Work?
What Is ICO?
Initial coin offerings (ICOs) are exactly what they sound like. Another way for firms to generate funds is via the use of ICOs. ICO trading platforms provide unique cryptocurrency “coins” in return for money invested in the company. It’s a way to raise money for a project via the production and sale of a digital token.
With this unique token, investors may access particular project features that are being administered by the issuing firm. Open-source software initiatives that would be difficult to support via conventional institutions are now able to get funding thanks to these tokens.
What is ICO?
How Do ICOs Work?
ICOs are complex and need extensive expertise in technology, money, and the law. ICOs are based on the premise that decentralized systems using blockchain technology may be used to align the interests of multiple stakeholders in capital-raising efforts. The steps of an ICO are as follows:
Identifying Investment Goals
The first goal of any ICO is to generate money for the issuing firm. To attract investors, a firm first determines its target audience and then generates the necessary information for them.
The generation of tokens is the next phase in the initial coin offering process. Tokens are essentially digital representations of anything on the blockchain, such as a resource or service. Tokens may be exchanged for one another and are fungible.
There is no need to confuse them with cryptocurrencies since the tokens are just adaptations of current crypto coins. There is no ownership investment in a corporation using tokens, unlike stocks. The majority of the tokens, on the other hand, provide their holders with an interest in a company-created product or service.
Tokens are produced on a certain blockchain following a predetermined protocol. The development of tokens is easier than the creation of a new coin since a corporation does not need to create the code from start. It is possible to create new tokens by making small changes to the current code on blockchain systems that already run existing cryptocurrencies, like Ethereum.
Promotion campaigns are also common for companies to attract new investors. To reach as many people as possible, these campaigns are often run online. However, ICO advertising is now prohibited on several prominent web platforms, including Facebook and Google.
How do ICOs work?
Tokens are produced and then made available for purchase by investors. The sale might be broken up into many rounds. The firm may then utilize the ICO funds to launch a new product or service, while investors can expect to use the purchased tokens to profit from this product or service or wait for an increase in the tokens’ value.
How Many Types Of ICOs?
The following is a list of the two primary kinds of ICOs:
- Private ICOs
A restricted number of people may participate in private ICOs. Individuals and institutions with significant net worth are generally barred from participating in private ICOs, however, a firm may opt to establish a lower investment threshold.
- Public ICOs
ICOs that are open to the general public is a kind of crowdsourcing. Because practically anybody may participate in a public offering, it is a kind of investment that has been democratized. Private ICOs, on the other hand, are becoming a more realistic alternative to public offers because of regulatory problems.
>> Read also: What is an IDO and how does it work?
Advantages Of ICOs And It Risks
Advantages Of ICO
The investors may enjoy various benefits:
- An inexpensive way for investors to get their hands on brand-new cryptocurrencies in the hopes of seeing a profit.
- Benefits like income redistribution or exclusive access to a project’s goods and services are possible with ICO tokens.
- Ability to support initiatives and teams you enjoy.
Advantages Of ICOs
Meanwhile, token issuers get:
- Quick access to initial investment with fewer regulatory limitations.
- Funds without any loss of equity unless mentioned differently.
- Opportunity to design and experiment with unique decentralized company models.
- An early user base that is eager to try the service.
Risks Of ICOs
Simply put, ICOs come with a fair share of hazards, too. For example, token purchasers have to face:
- Relatively inexperienced staff with little certainty that the project will deliver its claims.
- There is no regulatory safeguard or return guarantee.
- There is a lack of openness on the progress of the project.
- The possibility of the project being an elaborate fraud or pump and dump plan.
- A lack of clarity in the rules that might lead to penalties or jail time.
- A risky bet made possible by the unpredictability of cryptocurrency as an investment.
- Little to no information on the token holders.
How Do I Get ICO Crypto?
Several websites, including Reddit, Cyber Fund, and even social networking platforms like Facebook, keep track of current and upcoming initial coin offerings (ICOs). As soon as you’ve decided on a project or a firm to invest in, the first step is to set up a crypto wallet.
ICOs may range in requirements due to the absence of a standardized framework; although a basic procedure of transmitting tokens upon payment by cryptocurrency to the blockchain recognized and published on the ICO website, which also provides investors with step-by-step guidance for investing, may be used.
Investing in cryptocurrencies should not be done via an online wallet or exchange, according to well-known sources like Blockchainhub’s advice. The exportability of a wallet’s private keys is critical since backers often have to export them into another wallet to use their new currencies.
How do I get ICO crypto?
Online wallets have been developed to help with the ICO process, with investors being able to put monies directly into the wallet, which are then swapped into tokens at the current exchange rate and transferred back into investors’ online wallets. Others send the tokens bought to the address from which the cash was sent.
As an added precaution, prospective buyers should keep in mind that certain wallets may be incompatible with the tokens, rendering them invisible after they have been purchased and received. As a result, a wallet that allows the export of private keys is vital, so that tokens may be transferred to a new wallet that is compatible with the original.
Ethereum’s wallet now supports numerous tokens, making it easier to acquire tokens than it was before, and producers are now able to put up user-friendly campaigns.
Scams and Ponzi schemes may be avoided by doing your homework before investing, and ICO ratings and other organizations provide investors with a thorough evaluation of the project or company in issue, as well as further background information if you need it.
The Distinct Between IDO Vs ICO Vs IEO
Let’s take a quick look at the comparison of what is ICO vs IDO vs IEO:
|Definition||Through a decentralized exchange, a portion of the total token supply is sold to the public.||Independently, some of the entire quantity of tokens are offered for sale to the general public.||Tokens are sold to the general public via a centralized exchange (CEX).|
|Conducting fundraise by||An IDO launchpad or decentralized exchange||The ICO’s issuing organization||The centralized exchange|
|Listing token||The token is listed on the CEX by default.||To list its tokens on multiple exchanges, the initiative works with them.||The token is automatically listed on the CEX.|
|Vesting schedule||The launchpad’s requirements must be met before a project may go forward.||ICOs may be issued by any project, and no one is vetting them.||Before being included, each project undergoes a thorough verification procedure.|
|Token available||You may either get your tokens right away or you have to wait for a length of time.||For investors, tokens are not instantly accessible, thus they must wait for the tokens to be listed on the market.||Trade-in tokens is not yet possible.|
|Smart contracts management||Launchpad and the project that issued the IDO manage it together.||The project issuing the ICO is in charge.||The crypto exchange is in charge of this.|
|Marketing strategies||Both the project and the launchpad are involved in marketing.||Investing in advertising for the ICO is an expensive undertaking for the project that is issuing the tokens.||The crypto exchange is in charge of marketing and promoting the IEO.|
>> Learn more: What is an IEO? In-depth Information about initial exchanges offering
Some FAQs About ICOs
How Do You Profit From ICOs?
As soon as the project is finished and tokens are posted on an exchange, you may sell them for profit. An ICO’s primary goal is to lower the token’s price for those who buy early. Investors are drawn to ICOs because of the possibility of large profits, sometimes within a short amount of time after investing.
What Are ICO’s Main Purposes?
Startups may raise money by creating their cryptocurrency via an initial coin offering (ICO), which is a simple definition. It’s also a terrific way to establish a community of investors and brand loyalty.
Who Can Create An ICO?
An ICO may be started by anybody. It used to be mostly utilized by blockchain startups to generate cash, but now it’s becoming more popular with huge corporations as well. KODAKCoin, a cryptocurrency created by Kodak, was a success in 2018 until being shut down due to a lack of interest.
To decide whether or not to start an ICO, a business leader must assess whether or not the crypto blockchain can operate with the procedures of the organization. It is critical to know in advance how much Bitcoin your organization can sell. In certain cases, an IPO (Initial Public Offering) may be a more appropriate option.
Is Crypto ICO legal?
In general, ICOs are uncontrolled. There are no particular restrictions for ICOs in the United States. A security offering, on the other hand, comes under the authority of the SEC and is subject to federal securities laws. So, the answer for is crypto ICO legal? Yes.
Is crypto ICO legal?
Now you understood what is ICO and how does it work? An ICO is a hybrid of an IPO and internet crowdfunding, but only for cryptocurrencies. Once an existing token is contributed, the issuer sets a date at which the new token will be issued at a fixed conversion rate.
Both a utility and a security function are possible with this token. Unrestricted utility tokens may be used by entrepreneurs to raise money for project funding in return for future usage of the service now under development. According to the Securities and Exchange Commission (SEC), security tokens are a kind of stock that may be traded, and they are regulated by the SEC.
In the ICO world, some are concerned about the true worth of tokens and how simple it is for the issuer to make money via the sale of tokens. Time will tell whether this is the future of corporate finance or just a “get rich” scheme for issuers. To learn more, about other cryptocurrency topics click here.