To adapt to a new business environment, financing methods are evolving. The online world and digitization are now critical issues for economicdevelopment. Cryptocurrencies, the Blockchain, and all of its utilities are on everyone’s lips. They are supported by many variants and services, making them a clear advancement in the current ecosystem.
One of the terms popularly known alongside Blockchain and cryptocurrencies is the Initial Coin Offering (ICO). Initial Coin Offerings (ICOs) are now widely used in the world of cryptocurrencies and Blockchain, and it is estimated that around 1.25 billion dollars were raised with this instrument alone in 2017.
ICOs are one of the terms that have gained popularity in recent years. It is a new type of cryptocurrency in Blockchain used by businesses to raise capital.
But what exactly is Blockchain ICO, and how can you create one for your project? Read on to find out.
What is an ICO in Blockchain
ICOs are a type of financing used by startups or individuals who want to carry out a specific project made possible by technology.
In order to obtain funding, a project is proposed to the public (typically through a so-called “whitepaper”) that will be implemented via Blockchain with the creation of “tokens” to be transferred to lenders in exchange for consideration.
The term “Initial Coin Offering” has obviously been borrowed from that of “Initial Public Offering,” which is a public offering of financial instruments by an issuer (shares, bonds, etc.).
Entrepreneurs use an Initial Coin Offering (ICO) or token sale to distribute digitalassets such as coins and tokens to investors in exchange for capital. Similarly, ICOs are a new type of funding that has generated thousands of dollars on the Blockchain.
In addition, an initial coin offering is usually preceded by the publication of a white paper that describes the token sale, the underlying computer protocol and Blockchain, as well as the project and business model. The number of tokens is typically limited, with a funding cap.
Initial coin offerings (ICOs) are a type of funding mechanism that allows cryptocurrencies to be collected or obtained, allowing the launch of a new service or currency. The investor gives the company the cryptocurrencies in exchange for a token.
An ICO is a cutting-edge mechanism for raising money for new initiatives from people who wish to become involved; the cryptocurrency raised can then be freely traded.
Since the majority of ICOs are built using Blockchain technology, understanding how it functions will help us better comprehend how everything is structured.
A Blockchain, like a database, stores information electronically in a digital format. Blockchains are popularly known for their important role in cryptocurrency systems like Bitcoin, where they keep a secure and decentralized record of transactions.
The Blockchain’s innovation ensures the reliability and security of a data record and generates trust without needing a trusted third party. And this is being implemented in ICO.
It’s critical to understand the risks involved in ICO because this is a brand-new industry with few to no rules, leading to increased fraud instances.
It must be remembered that money is being contributed to a newly created project, and recovering the money will depend on the viability of the said project; like any investment, there is a risk, but the risk is much higher on new projects.
Blockchain technology is still in its premature stages, and there are no professional intermediaries as there are in the regulated stock market.
When a cryptocurrency project decides to raise funds through an ICO, the first step is deciding how the coin will be structured. ICOs can be structured in various ways, including:
Static supply and static price: A company or industry can specify a funding goal or limit, meaning that each token sold during the ICO has a fixed price, and the total token supply is fixed.
Static supply and dynamic price: An ICO can have a fixed token supply and a dynamic funding goal, which means that the overall price per token is determined by the amount of money raised in the ICO.
Dynamic supply and static price: Some initial coin offerings (ICOs) feature a dynamic token supply but a static price, meaning that the supply is determined by the amount of cash raised.
What is Blockchain ICO used for
ICOs are virtual currencies that can be exchanged for real money and are used to make low-cost payments that accumulate or store value.
ICO’s primary function is to gain benefits through investmentrounds, receiving the cryptocurrency at a lower price initially and later in subsequent rounds. It is similar to crowdfunding but with monetary rewards when funding them.
How to create a Blockchain ICO
The primary thing you should do if you are thinking about starting an ICO but are unsure of the next steps to take is to ask yourself questions like who is your target audience and what problems they are having that they need a solution to.
It’s crucial to investigate current ICOs and look for a chance that hasn’t yet been taken advantage of. Consider researching unsuccessful initiatives and making another attempt to bring them to life.
The steps you must take to launch an ICO for your product after asking yourself these questions are as follows:
Present your products and services in a way that will help communicate and defend your idea: do it in specialized communities and pay attention to the criticism of investors and those involved in project development and commercialization.
Surround yourself very well: decide who will accompany you once you have a plan and an overview of the project. The most common involves approximately 20-30 people, including writers, strategists, editors, designers, programmers, and legal advisors. There are also ICO experts who can assist you. Always surround yourself with people you can rely on.
Evaluate the market: before you build the project, research what’s happening in the ICO industry and consider what works and what doesn’t. Consider what your competitors are doing already.
Registration of project: you must first determine whether or not your country permits you to work with cryptocurrencies. Countries like the US, the United Kingdom, and Switzerland are usually among the most common that allows this.
Create your ICO’s WhitePaper: this will be the project’s most important document, informing your investors and users of everything they need to know about it. Do not let just anyone write it, and ensure that they have experience writing similar documents. This document’s basic details include the terms, purchase conditions, project technology, and token. Creating additional documents (for example, tutorials explaining how to use digital accounts) is also a good idea.
Start building your website: it will be the project’s visible face, so it must be both informative and appealing. Tell what is fair and necessary: what it is, when it will be launched, and why you should invest in it. It is critical to include a presentation video, a subscription form, a team page, another news page, a link to the White Paper, links to social media, and some form of contact.
Prepare terms and conditions for your investors: launching a discount will generate interest and curiosity in your project, allowing you to stay ahead of your competitors. It would help if you also considered starting a pre-ICO process to analyze the initial responses and correct any errors.
Ensure that the project is communicated well and encourage discussion about it: work with a marketing firm if you think it’s required, make an effort to generate awareness about the project, manage a mailing list, maintain your social media profiles, and run ads there. It is crucial to be visible on websites that track ICOs as well.
Release your token: release it once the sale is done, and do it on any of the supported platforms. Investors, who will receive their tokens and account keys separately, might want a separate page.
Launch your ICO!: do it with a solid campaign after making sure your website is secure. During the sale’s active period, be sure to promote the launch on social media and various specialized websites.
Examples of Blockchain ICO
A good example of Blockchain ICO is the Ethereum ICO, Cardana and Tezos.
The Ethereum ICO Ethereum raised 31,531 bitcoins (15 million dollars at the time) during its summer 2014 launch campaign with a pre-mined system. Because it was stipulated in the ICO investment agreement, investors had to wait a year before they could trade their ethers on the market. A precaution was taken to reduce initial speculation. The current market value of 31,531 bitcoins is $26 million. At the time, the launch of ether was one of the most popular crowdfunding campaigns for any protocol, positioning Ethereum and its cryptocurrency – ether – as a serious competitor worthy of attention from developers and investors in the ether market in comparison to the Bitcoin protocol. Some of the most famous and important ICOs of new decentralized protocols have used Ethereum as a reference protocol.
Cardano (CRYPTO:ADA) ICO Cardano enhanced the features of Ethereum and had a more prosperous initial coin offering. The company raised $62.2 million in January 2017. Currently, by market capitalization, it is among the top ten cryptocurrencies.
Tezos (CRYPTO: XTZ) Tezos’ in July 2017 ICO raised $232 million; however, it wasn’t entirely successful. The distribution of the tokens sold during the ICO experienced numerous delays, which prompted a class action lawsuit. In 2020, Tezos settled with all parties for $25 million, which is currently among the publicly traded cryptocurrencies.
Advantages and disadvantages of Blockchain ICO
There are numerous advantages of Blockchain ICO; the following are some of them:
Agility: anyone can launch an ICO using platforms such as Stellar or Ethereum.
Market decentralization: with the help of Blockchain technology, ICO processes are carried out through a secure, shared, and decentralized network, eliminating the need for intermediaries.
Great liquidity: we are discussing a market of cryptocurrencies that will allow you to obtain large sums of money quickly.
International market: because of its internet access, it can promote itself through socialnetworks and specialized sites where you can find potential clients who want to invest in projects and teams that interest them.
Great expectations: it is a powerful financing method that could provide significant benefits, as Ethereum did in the summer of 2014 when it launched one of the first known ICOs, raising more than 12,000 million dollars.
The investment is democratized: anyone can participate without prior training, regardless of whether they are field professionals or live in one country or another around the world.
As is often the case, not everything that glitters is gold. Problems are also being detected in the case of ICOs, and with the investor craziness that has been unleashed today, you must be extremely cautious with the invention of ICO.
Almost anyone can create a project, assemble a strong team, publicize it, and receive funding to keep all the profits. This is referred to as a scam in the world.
Another issue that exists is ICO counterfeiting. There are smart people who have made copies of official ICO web pages, changing only one letter, and deceived many people who transferred money to their accounts, thinking they were participating in the official ICO.
An ICO is a hybrid of an IPO and online crowdfunding, but for Blockchain and cryptocurrency. At a date set by the token’s issuer, one can donate the “X” amount of an existing token and obtain the “Y” amount of a new token (at a set conversion rate).
This token can be used in one of two ways: with a utility or security function. In general, utility tokens are unregulated and are used by startups to raise capital to fund their ventures in exchange for future admittance to the service in development.
A security token, on the other hand, is generally treated as a stock, a tradable asset with ownership characteristics, and is regulated by the SEC.
ICOs are a new innovation, and some have expressed concerns about the real value of the tokens and how easy it really is for the issuer to become wealthy. Finally, time will tell whether this is the future of business funding or merely a “get rich quick” scheme by issuers.