ICO stands for “Initial Coin Offering” and means the initial supply of coins or cryptocurrency, which is a method of attracting capital in the early stages of a cryptocurrency project. Initial Coin Offering (ICO) is a fundraising method and investment opportunity where the tokens of a project are sold before the start of the project and people can invest in it by buying tokens. In an ICO, blockchain-based project tokens will be used in the future, which increases their value if the project is successful. Contributors invest in the project using other digital currencies (usually bitcoin or ethereum) or traditional currencies (dollars or euros) and receive tokens for their money.
How is an initial coin offering created?
One of the main and primary steps for an initial offering of a cryptocurrency is to publish a whitepaper. The whitepaper is distributed to everyone through PDF files or on the project’s official website to introduce the project to investors and the general public. The objectives of the project are explained in the roadmap and many technical aspects of the project in the whitepaper.
Another main parameter of a digital currency IPO is determining the location of the IPO. The Ethereum blockchain can be considered the most important network offering an initial coin. Considering that there are many cryptocurrency projects that use this networking platform. Their first release was also done on the Ethereum network. The initial coin offering method can be considered the first type of coin offering explained earlier. Over time, projects have invented other ways to start their token or coin, which we will discuss in the rest of this article. Another key issue in the white paper is how each project’s cryptocurrency is distributed.
How to distribute the initial coin offering of digital currency
For the initial offering of the digital currency, the founders of the project can use three methods to determine the quantity and price of each token. We will explain each of these solutions below:
Fixed delivery quantity and fixed price
In this model, the founders of the project determine the number of tokens and the price of each token before launching the initial coin offering.
Fixed supply quantity and dynamic pricing
In this example, the founders of the project determine the number of tokens that will be sold in the initial offering of the crypto currency, but the price of the token is not determined. In this method, user sums are collected first, and to determine the price, the collected sum is divided into the number of tokens. In this way, the price of each token is determined and sent to each token user according to the amount sent.
Dynamic supply quantity and fixed price
In this model, the founders of the project determine the amount of money to collect, and the number of tokens to be issued is not determined.
Tips on Initial Coin Offering or ICO
According to the description of the first coin offered by the ICO in the digital currency market, many investors, especially those with little experience in the field of work in this market, are encouraged to buy this type of currency, Therefore, before buying coins, it is necessary to mention a few points about the initial supply of coins in order to introduce as many people as possible to this type of currency. These points include:
- Since transactions in the digital market are anonymous and almost irreversible, profit seekers have a good opportunity to sell deceptive and baseless cryptocurrencies and false advertising.
- Sometimes it is possible that even if the digital currency project is real, it does not go according to plan and fails, causing the investors of these cryptocurrencies to suffer huge losses.
- This type of investment is completely online and does not require people to visit in person.
- Because digital currencies are an emerging market; There are no specific rules about them yet. Initial coin offerings, or ICOs, are no exception to this rule.
- This form of investment has a high level of liquidity
- If a digital currency project is realistic and has a strong development team, it has a high chance of success, and if successful, investors in this crypto currency can enjoy significant benefits.
How to know the initial coin offering crypto?
Before starting an ICO, the event is announced through various notification methods and how it will be conducted. The project team may set a deadline or extend the campaign depending on the maximum number of tokens that can be sold in the initial coin offering. In the first phase, if the capital is received at any time in full, in the second phase, the program is stopped when the capital reaches a certain level. The ICO may not be available to the general public without conditions.
For this reason, sometimes a whitelist is created so that only people on it can buy. Therefore, you should check and comply with the terms and conditions of the ICO before adding your name to the whitelist. Then people who are willing to invest money in the form of cryptocurrency send to a specified address. Often you have to pay in Bitcoin or Ethereum, but there are no specific rules and it all depends on the startup’s policy. The destination address is actually a smart contract and transfers a number of ICO tokens to the desired address or sender address depending on the amount deposited. You can follow the special information website to learn about upcoming ICO highlights. And the most popular websites in this field are icodrops.com and coinmarketcap.com.
The ICO is actually raising money from investors to start a project, and in return for the amount collected, a number of new tokens belonging to that project are given to investors. When participating in an ICO, investors should pay attention to many points that we will briefly mention in this article. Because these ICOs are designed to be fraudulent from the start, and because they are not overseen by a government regulator, it will not be possible to recover the capital.