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All You Need To Know About Initial Coin Offering or ICOs

  • Utsav Mishra
  • Dec 11, 2021
All You Need To Know About Initial Coin Offering or ICOs title banner

If you pick up any newspaper or go through any news app right now, you will find at least one or two trending topics in cryptocurrency. 


All this while, people’s interest in cryptocurrency has skyrocketed in almost an unimaginable way. And one of the main strategies to get involved in this business is through initial coin offering or ICO. 


In this blog, you will get an overview of the Initial Coin Offering system and how it helps businesses raise their capital. You will also understand how an ICO is different from an IPO. But first, let’s get a clear idea of all the purposes of the initial coin offering. 


What is meant by Initial Coin Offering?


ICOs are just another type of virtual money or cryptocurrency that companies utilize to raise funds. Investors acquire unique cryptocurrency "tokens" in return for their financial shareholders’ investment through ICO trading platforms. It is a type of crowdfunding in which a virtual ticket or token is created and sold to raise funds for a project's development.


This one-of-a-kind token works as a medium of exchange, granting investors access to specific attributes of the issuing company's enterprise. Such tokens are unusual in that they aid in the funding of open platform programs that would otherwise be difficult to fund through standard methods.


Types of Initial Coin Offering


ICOs are of two types. They are:


  1. Private ICO


Only a small number of investors are allowed to participate in private initial coin offerings. 


In general, private ICOs are only open to accredited investors (financial institutions and high-net-worth people), and a company can choose to set a minimum investment amount.


  1. Public ICO


Initial coin offerings (ICOs) aimed at the general public are a type of crowdfunding. Because practically anybody can invest in a public offering, it is a democratized type of investing. 


Private ICOs, on the other hand, are becoming a more viable choice than public offerings due to regulatory issues.


The popularity of ICOs is being boosted by the emergence of cryptocurrencies and blockchain technology. In 2017, more than $7 billion was raised through initial coin offerings (ICOs). 


In 2018, the number nearly doubled. Telegram, a provider of instant messaging services, held the largest initial coin offering (ICO) to date. The UK-registered corporation raised almost $1.7 billion during a private ICO as specified by TechCrunch.


ICOs are often confused with IPOs, even when there are a lot of differences between them. Let us look at the difference between ICO and IPO.


Difference between ICO and IPO


Initial public offers (IPOs), a fresh stock offering by a private firm, are sometimes likened to ICOs. Companies can raise capital through both ICOs and IPOs.


  1. The main distinction between ICOs and initial public offerings (IPOs) is that IPOs involve the sale of securities and are subject to substantially tougher laws. 


An IPO requires a company to file a registration statement with the Securities and Exchange Commission (SEC) and receive permission. A prospectus that includes financial information and potential risk factors should be included in the registration statement.


  1. An initial coin offering (ICO) is the sale of a cryptocurrency rather than security. As a result, it lacks the formal criteria that IPOs have. However, if a corporation tries to circumvent the rules by holding an ICO for something that meets the definition of security, it may face legal consequences.


ICOs and IPOs both carry certain risks, but IPOs are safer since they are largely regulated.


How does ICO Work?


An initial coin offering is a complex procedure that involves a thorough understanding of technology, finance, and the law. 


The fundamental idea behind ICOs is to use blockchain technology's decentralized networks (such as decentralized cryptocurrency exchanges)in capital-raising efforts to align the interests of multiple stakeholders. 


The following are the steps involved in an ICO:

  1. Identifying investment objectives


Every ICO begins with a company's desire to raise funds. The company determines the fundraising campaign's target audience and prepares the necessary materials for potential investors to learn more about the company or project.


  1. Tokens are made


The generation of tokens is the next step in the initial coin offering. To put it another way, the tokens are blockchain representations of an asset or utility. The tokens are tradeable and fungible. 


Because the tokens are simply adaptations of current cryptocurrencies, they should not be mistaken with cryptocurrencies. Tokens, unlike stocks, do not often provide an equity stake in a corporation. Instead, the majority of the tokens provide their owners with a share in a company-created product or service.


The tokens are created on blockchain platforms that have been mentioned. The process of creating tokens is very straightforward since unlike the production of new money, a corporation is not necessary to build code from the start. 


Existing blockchain platforms that run existing coins, such as Ethereum, instead allow the creation of tokens with small code changes.


  1. Campaign for promotion


A corporation will normally undertake a promotion campaign at the same time to attract possible investors. It's worth noting that most campaigns are run online in order to reach as many investors as possible. 


ICO advertising is now prohibited on several significant web platforms, including Facebook and Google.


  1. Initial public offering


The tokens are then offered to investors after they have been created. It's possible that the offering will be divided into numerous rounds. 


The company can then use the ICO money to create a new product or service, while investors can either use the tokens they purchased to benefit from this product/service or wait for the tokens' value to appreciate.

(Must read: Bitcoin and its revolution in crypto market)


Now that we know how an Initial Coin Offering works, Let us try to know how a company can start their own ICO.



How Can One Start Their Own ICO?


Starting your own ICO is as simple as designing a cryptocurrency token, deciding on a date, and establishing regulations for the token sale.


There's a lot more that goes into the ICO process than just raising dollars. The most crucial aspect is to have a cryptocurrency project that people want to support. 


You'll also need to figure out how your new cryptocurrency will fit into the project. You'll also need all of the following during the ICO process:


  • A document detailing your project's goals and objectives

  • A plan containing short- and long-term objectives

  • Other ICOs' market research

  • A website and a presence on social media

  • A public relations campaign


With everything that goes into an ICO, it requires a committed team to make it a success. You can form your own team or collaborate with an ICO firm that specializes in these types of launches.


ICO Regulations Across the World


In the world of finance and technology, the initial coin offering (ICO) is a brand-new phenomenon. In recent years, the introduction of initial coin offerings (ICOs) has had a tremendous impact on capital-raising operations. Regulators around the world, on the other hand, were unprepared for the introduction of the new fundraising model in finance.


Varied countries have different approaches to regulating initial coin offerings. ICOs are prohibited by the governments of China and South Korea, for example. Many European countries, as well as the United States and Canada, are working on particular legislation to control the conduct of initial coin offerings (ICOs).


At the same time, a number of countries, including Australia, New Zealand, Hong Kong, and the United Arab Emirates, have already released guidelines regarding ICOs (UAE).



Examples of Initial Coin Offering


Let us take a look at some of the most profitable and awe-inspiring ICO results, now that we have an understanding of what Initial Coin Offering is and how it works. 


  1. Filecoin


Filecoin is a decentralized information storage network that uses blockchain technology to allow consumers to exchange their storage and grant access to their servers in return for Filecoin and other prizes.


  1. Sirin Labs


The Sirin Labs ICO raised almost $100 million in only 24 hours, indicating that investors were eager to get their hands on the company's unique coin. The initial coin offering would raise another $57.8 million in digital tokens over the next eight days, bringing the total to $157.8 million. 


  1. Bancor


Bancor is a speculation market built on blockchain technology. This project allows cryptocurrency owners to create liquid tokens that can be used to assess their own worth and be converted into other tokens. Users can buy a Bancor token that is 50 percent Ether and 50 percent Litecoin, for example.


  1. Ethereum


As of September 2021, Ethereum is the second-largest digital money by market capitalization. Whereas Bitcoin is a cryptocurrency, Ethereum is a virtual currency that also serves as the basis for decentralized apps that employ smart contracts.


Ether tokens were sold for $0.31 apiece during the ICO, and the token is currently worth well over $3,128 as of September 27, 2021, delivering a healthy return on investment (ROI) for those who got in early. 


Ending Notes


ICOs are a fantastic method for a blockchain-based business to obtain cash for a project while also offering investors a great chance of getting their money back and more.


Hope this blog taught you whatever you needed to learn about ICOs. As is clearly evident this arena of Initial Coin Offering is still booming. With every passing day, there is an increasing number of individuals wanting to be a part of this fascinating process. 


(Suggested reading: Top Cryptocurrency Exchanges)

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