Introduction to the world of ICO
Today we are going to have a look into the world of ICO and let’s have a glimpse of things which I am going to discuss in this blog which is as below.
- What is ICO?
- Do You Know The History of ICO?
- How ICO Works?
- Things You Needed To Launch Your Own ICO!
- Token Distribution Techniques
- What Are Advantages Of An ICO?
- ICO VS IPO
- Why Most ICO Fails?
What is ICO?
Many of us have heard the name “ICO” but many do not know what is the actual functionality of ICO.
ICO means Initial Coin Offering in which fundraising can be done for projects in which a company sells their own crypto token in exchange for bitcoin, ethereum or some other currencies. The pre-created token can easily be sold on all cryptocurrency exchanges if there is a market demand of the token then it also can be traded on exchanges. In a simple way, I can say that ICO is a way to gather funds for projects because it enables each and every person to be an investor.
Ethereum Blockchain is most likely used in generating a token for ICO and this token can be integrated with the projects. With this turn, ICO becomes very popular which is used by companies for crowdfunding their projects.
Do You Know The History of ICO?
As per my knowledge, the first cryptocurrency distributed by an ICO was Ripple. In early 2013 they started to develop the Ripple called payment system and created around 100 billion XRP token. The company distributed these tokens to fund the development of Ripple platform.
Mastercoin created a mechanism to execute smart contracts and tokenize Bitcoin transactions.
EOS — Many of us have heard this name. EOS is one of the longest-running ICO in the history ever, it’s a year-long ICO and they raised $4 billion during token sales. For more details, you can check out here.
How ICO Works?
First of all, there is a pre-announcement of the procedure that how investors can invest their cryptocurrency in a project.
After that Offering proposal is made by the company who is going to enter the ICO. In this proposal, they describe the project and the required amount of investment and the deadlines of the project. The proposal also describes the token which is going to be used in exchanges.
The ICO is not only for the big companies but it aims to attract small companies too.
One of the most important parts of ICO is marketing because it directly affects fundraising.
Things You Needed To Launch Your Own ICO!
- A detailed Whitepaper that explains everything about your idea and explanation of how you are going to build a project that will change the world.
- A well-designed marketing website that has a few important sections listed including but not limited to:
- Core team section with photos and introduction of each team member. Preferred LinkedIn and Twitter links. Also, add a list of board of advisors.
- What is your timeline for the project including its Alpha release, beta release, public release, future milestones?
- Distribution of your coins and offerings. Basic structure that companies follow is:
- 50% public offering
- 25% distributed to the team
- 25% kept for future
- Some money and time to reach investors and media and aware them to invest in your project.
- A Team that can create your Smart Contract or tokens.
Token Distribution Techniques
Here I am going to discuss very few techniques which can help you to decide your token distribution process.
Uncapped:- Buyers buy tokens with fiat or cryptocurrency at a fixed ratio. Early buyers may get tokens at a better rate. After that, as time passes the value may get vary as per market rate.
Hard Capped:- It has a fixed cap and when token distribution reaches at that cap it will stop the sale and it is for limited tokens only.
Soft Capped:- It also has a fixed cap. Cap can be set as the minimum requirement of fundraising the project. After reaching soft cap it is based on the ICO that they want to continue fundraising or not. Mixtures of soft cap and hard cap also can be seen in some ICOs.
Hidden Caps:- In this, people cannot know about cap it can be revealed at any time by ICO.
Dutch Auction:- The price of the offering gets set after taking in all bids and planning the highest price at which the total offering can be sold. Bids are sorted from highest to lowest. The highest bids are accepted until the sum of the desired quantities is enough to sell all the given tokens. After the last bid is acquired, all bidders with an acquired bid get the last bid’s price for each token.
Reverse Dutch Auction: A capped sale is established. However, the portion of tokens given to buyers depends on how long the sale takes to complete. If the sale completes on the first day, only X% of total tokens are allocated amongst the buyers. If it finishes on the second day, X+Y% of total tokens are allocated amongst the buyers and, so on.
What Are Advantages Of An ICO?
ICOs are open for all public that means anyone who owns cryptocurrency can participate in crowdfunding. It means that a project can raise funds in a totally decentralized manner. More investors from all over the world can participate in funding.
One of the foremost advantages of investing in ICO is the chance of investing in new or upcoming technology.
ICOs follow the limited supply-demand principle, allowing their cryptocurrencies to gain value in the future.
ICO VS IPO
Many of us have some misconceptions about ICO and IPO let me try to clear all misconceptions by differentiating between ICO and IPO
- ICO’s have little regulatory oversight, while IPO’s are highly regulated.
- ICO’s are short in duration, while IPO’s take a long time.
- IPO’s are exclusive and ICO’s open to all.
- IPO’s aimed to collect dividends, while ICO’s promote adoption of a company and its associated services.
- ICO’s track record and credibility are weak, while IPO’s track records and credibility is strong.
Why Most ICO Fails?
Most of ICO fails because they don’t have the basic understanding of reason to use blockchain in their project. Some don’t come up with proper planning to launch ICO. And some of the people’s goal is to do a scam on the name of ICO. That’s why people have trust issues with ICO and cryptocurrencies.
There are 4 types of ICO’s :
Turn and Burn: In this, a group of people form a company and generate a white paper. With the basic knowledge, they directly go for token sale. The problem is that they don’t know why they need blockchain to build their project. Or don’t have any intention ever for delivering a live product.
Riding the Wave: A company goes to the token sale which is built upon a popular blockchain with full intention to switch to another blockchain which is also a popular one after a token sale. This allows them to ride the wave of the popular blockchain.
Young and Dumb: While the group has some chances to get success at ICO but they come in a token sale and chase all the money. They have placed their idea on white paper but it is just based on hopes and dreams that are never going to be true.
The Realistic: This group has the best chance to get success in the market. They have already done all the planning about to bring their product in the market.
