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Initial coin offering (ICO) is one of the mechanisms of the digital currency market to raise capital for the launch, development and expansion of blockchain and cryptocurrency projects. ICO may be implemented before or after the start of a project;
Although the developers’ preference is the initial supply of digital currency before launching the project so that they can improve their product with the capital obtained. In fact, the developers were able to fund the expansion of their project and attract many investors from all over the world with the initial coin offering method.
Through the initial offering of digital currency (Initial Coin Offering), people provide funds for investment to project owners and instead receive the blockchain token of the new project. This method can be considered somewhat similar to initial public offering (IPO).
The free cryptocurrency IPO is a source for raising funds to launch new projects and platforms. Initial coin offerings have been one of the biggest changes in recent years. Therefore, it is not surprising that questions such as Ico, what is digital currency? What is Ido and ico? What is Ieo? And … happen to you. In the rest of this article, I will explain more about the initial coin offering or ICO coin.
What is ICO or ICO of digital currency?
At the beginning of the discussion, you may be faced with the question, what does Ico stand for? ICO actually stands for Initial Coin Offering. The meaning of this concept is the initial supply of coins by an individual or an organization to attract capital to start a new project.
In this way, that person or organization provides their own token by receiving funds from investors. In the process of Initial Coin Offering, a person or an organization collects capital to build a new coin or create a service, the application collects capital and in return offers some tokens to investors.
These tokens or coins can be used in the continuation of the service or application that is going to be created. In this crowdfunding phase, the project will get enough capital to turn the idea into reality by creating tokens on the blockchain platform.
ICO in the digital currency market is equivalent to IPO, meaning initial public offering. In ICO or Initial Coin Offering, which is actually considered a type of crowdfunding, pre-sale of token, coin or digital currency is done in some way. The Ethereum IPO in 2014 is one of the most famous ICOs in the world, during which 60 million Ether (ETH) were sold at a price of $0.3. For this purpose, the development team creates a white paper file to provide details about the project, its purpose and attract buyers. Finally, with the obtained capital, they build their own service or program.
Initial coin offering history
This procedure started for the first time in 2013 and 2014; When Vitalik Buterin and other developers of the Ethereum project were able to raise the necessary capital through the initial coin offering. In 2017, the ICO method reached its peak of success and various projects were able to reach a total of 5.6 billion dollars in capital.
In the first two months of 2018, this amount reached one billion. As the most successful ICO event, the Ethereum project managed to raise $50 million and earned $18 million in profit through this event.
Since then, launching an ICO has become a norm in the digital currency space. Some projects could not achieve much success and meet the expectations of investors, after which the losers complained to the legal authorities.
This process, which led to the entry of legal and regulatory institutions into the initial supply of digital currency, followed the establishment of strict rules for the implementation of this event. After the establishment of these rules, the projects could no longer do the initial offering of tokens as easily as in the early years and were required to comply with the rules and conditions before the start of the event. But still, these laws have not worked very successfully and have not been able to prevent fraud and Ponzi schemes in this area.
Read more: Ponzi Schema and how to spot a Ponzi scam
How is the initial supply of coins or coins done?
New digital currency projects publish their White Paper as the first step to start an Initial Coin Offering (ICO). In this white paper, the general plan of the project and its goals are mentioned. Also, the amount of required capital, the project owners’ share of tokens, the currencies accepted from investors and the time of supply will be announced. At the time of launch, people who decide to invest in that project buy tokens using digital currencies or fiat currencies accepted by the project owners.
Blockchain tokens, if they are accepted by large and reliable exchanges such as Binance, are a capital that can be improved for those who bought them at the time of their initial release.
In some cases, after the completion of the initial coin offering, the project fails due to the failure to collect the anticipated funds by the startup owners, and the project owners will be obliged to return the collected amounts to the investors.
Advantages of digital currency IPO
Below are some of the benefits of ICOs:
- Tokens are easily and quickly converted into cash, and investors will no longer have to worry about converting them into cash.
- The online nature of the IOC event makes it easy for investors to participate in it and to buy and sell the purchased token in the shortest time and easily remotely.
- Participating in the IOC event and the initial offering of digital currency will result in high and fast returns for investors due to the growing popularity of cryptocurrencies in the world economy.
- Considering that the initial supply of coins is done in the blockchain network, it is decentralized and there will be no possibility of cheating the results.
Disadvantages of initial coin offerings
In addition to the mentioned advantages, the initial supply of digital currency also has disadvantages, which we mention below:
- The possibility of project failure and capital destruction
- Loss of capital in a short time due to the volatility of the cryptocurrency market
- Existence of numerous scams in ICO events
Who can launch an ICO?
The technology used to create and distribute new tokens is available to the public without any restrictions. This means that anyone will be able to launch an ICO. However, in practice, legal regulations must be considered before launching an ICO. Of course, the regulations regarding ICOs in America are not complete due to the lack of any institution to enforce or supervise them;
Therefore, until you can launch the technology, you are free to make your own currency according to your taste.
In some countries, ICO is completely prohibited. Among all funding methods, ICO is one of the simplest solutions. Since there are no laws for ICOs and digital currencies, many scams occur in this field. Of course, it should be noted that in 2019 in our country, a note was presented for the law to combat the smuggling of goods and currency, but it was not approved.
Do not forget that the absence of regulations in this area in some cases does not mean the possibility of creating an ICO arbitrarily and complete freedom of action. It is not uncommon to be fined for allegedly offering unlicensed bonds. If in your country, according to a regulatory organization, tokens are recognized as securities, you will have a difficult and difficult process to collect capital and traditional methods of offering shares.
How to know about the initial supply of digital currency
There is no specific instruction in the field of informing about the initial supply of digital currency. People active in this field should constantly follow the news of digital currencies from various reliable sources. If you decide to make a profit by buying an IPO, you should regularly follow social networks and sites related to digital currencies.
Due to creating excitement among people by the initial release, in a short time many sites are exclusively focused on them.
You can also find out about ICO tokens through the introduction site of the initial offering of free digital currency.
Most of the exchanges that hold initial coin offerings also have a special page for information.
Distinguishing ICO validity from scam schemes
Considering that the ICO event is online, the possibility of theft and fraud through the Internet is very easy. On the other hand, according to what was said earlier, many countries have not yet enacted specific laws for ICOs, and legal authorities do not supervise this event.
It is not difficult for fraudsters to write an attractive white paper. Big profits have always been one of the baits of fraudsters that people fall into. Therefore, you must fully identify the owners of the project at the time of the initial release of the coin.
The continuous and transparent activity of the team members in social networks, the presentation of white paper and other information, the introduction of the project by reputable people and channels, the presence of famous people in the field of digital currencies in the startup team, etc. are notable points in this regard.
Below, I mention some other points that can be a warning for an ICO scam:
- Tempting offers and too good
- Anonymity of the development team
- Lack of clear road map
- The presence of irrational goals in the white paper
- Lack of a forum or open space to exchange information and opinions
Alternative ICO methods
Since the initial supply of coins became a platform for many frauds and no comprehensive rules were established for it, various methods have been created as an alternative; But only a limited number of them could be implemented.
Two of the most important alternatives to ICOs are the Securities Initial Offering (STO) and the Digital Exchange Initial Offering (IEO).
What is Ieo?
In the Initial Exchange Offering event, an exchange is the representative of the new project to create the event and checks all aspects before starting the offering and then starts it.
What is Sto?
Tokens are registered in the Security Token Offering under the title of securities. This process is implemented through legal channels and its risk is less.
Pre ICO
The term Pre-ICO means the purchase of tokens before the launch of the ICO. This may seem a bit strange at first, but in the world of cryptocurrency and blockchain, anything is possible. It costs money to create ads for an ICO launch. If the startup does not have the initial cost, it will be forced to auction before the actual auction.
In the pre-initial coin offering event, the tokens are sold at a lower price compared to the ICO. Therefore, at times, this method of investing in digital currency is considered a unique proposition.
Read more: Learning to invest in digital currency
Of course, in the initial coin offering, the amount of supply is limited, and it is possible that the funds needed to launch the ICO will be provided in a few seconds. Therefore, in order not to miss this opportunity, checking investment events must be done continuously. Pre-ICO is limited by most startups to a certain number of investors. In any case, the Pre-ICO will not succeed if there is not enough support and advertising.
What are the differences between ICO and IPO?
I mentioned earlier that ICO is a method similar to initial public offering. In an IPO event, private companies go public when they decide to transform their business.
In this way, the company’s shares are sold and the investors who buy these shares become business partners of the company’s owners. In the first instance, ICO may be considered an online type of IPO and no difference can be seen between these two events; But in fact, the initial supply of coins and stocks have important differences:
- Holding ICO online
- No need to get permission for ICO
- No minimum capital requirement for guarantee in ICO event
- Stronger legislation on stock offerings than coin offerings and more legal implementation of IPOs
- More liquidity of ICO tokens than IPO
- Higher risk of ICO than IPO
- Non-participation of investors in the project in the ICO event
Sites such as Coral , Coin Factory , ICO Box, Blockstarter , Coinlaunch , etc. First of all, you must have Bitcoin or Ether.
If you have basic and sufficient information about the coin, IPO can be a good investment option.
The funds collected in the ICO are mainly used for the development and progress of the project; But if an ICO fails, the project owners will be required to return the funds to the issuers.