Initial Coin Offerings (ICOs) are a fundraising method used by cryptocurrency projects to raise capital. In an ICO, a project offers digital tokens in exchange for investment, typically in the form of established cryptocurrencies like Bitcoin or Ethereum. These tokens represent a stake in the project or provide access to its products or services. ICOs have gained popularity due to their ability to provide funding to innovative blockchain projects. However, they have also faced scrutiny due to fraudulent schemes and there is a need for investor protection.
What happens during an ICO campaign?
- Tokens are sold during an initial offering
- Supporters buy these crypto coins, usually with virtual currency
- If the money raised meets the minimum amount needed within the set time frame, the startup can proceed with its plan
- If the money raised does not meet the minimum amount set, funds are typically returned to investors
Benefits offered by ICO for startups
- Cheaper fundraising: ICOs are often practically unregulated, and companies have to pay less in legal and related costs than with traditional types of fundraising.
- No ownership dilution: When a company holds an IPO or seels an ownership stake to a venture capital firm, existing owners see their position get reduced or diluted. With an ICO, existing owners hold onto what they have.
- More control: With an ICO, a company can keep more control over its business.
10 Tips For Safely Participating In Initial Coin Offerings (ICOs)
- Participate on the ICO website
Always refer to the ICO website for participation or other information regarding ICO. There are many scams where people pretend to be ICO founders. Stay away from such scams always use ICO websites and do not trust other sites or unknown pages.
- Read the Project’s Whitepaper
Read the project’s whitepaper to understand its goals, technology and token distribution.
- Active Community
Evaluate the project’s community and online presence. Look for active social media channels so that you can get the idea for the interest and support for the project.
- Register with a cryptocurrency exchange if you don’t have cryptocurrencies
To participate in an ICO, you need cryptocurrencies, usually Ethereum or Bitcoin. You cannot participate in an ICO with a fiat currency with most ICOs. If you don’t have the required cryptocurrency, you can purchase from an exchange.
- Use secure wallet
Don’t use exchange wallets where you don’t control the private keys. Move your coins to a wallet that is under your control. Store your tokens in secure wallets to protect them from hacks and theft.
- Stay up to date
Keep up-to-date with the latest news. Follow reputable sources and join communities to stay informed about upcoming ICOs.
- 2-Factor Authentication
Always use 2-factor Authentication during purchase.
- Secure your tokens
After you receive your tokens in your wallet, make sure to transfer these to a more secure wallet.
- Set a budget
Determine how much you are willing to invest in ICOs. Avoid investing more than you can afford to lose.
- Diversify your investments
Spread your investments across multiple ICOs to mitigate risk. Avoid putting all your investments in one ICO.
Related: Top 10 Stablecoins for Hedging Against Market Volatility
An initial coin offering (ICO) is a way of crowdfunding the development of a project through the release of a new cryptocurrency or token associated with that project. When looking into investing in ICOs, it is important to understand that not all cryptocurrencies have their own blockchain, and most are issued on top of another blockchain. For instance, take ERC-20 tokens, which represent a standard of interoperability within the Ethereum blockchain. Ethereum is a general-purpose blockchain where different tokens can be issued on top of its blockchain without creating their own infrastructure. Anyone can invest in an ICO and the potential for return is high, ICOs have revolutionized fundraising in the crypto space, but they have also faced criticism and regulatory scrutiny due to the prevalence of scams and fraudulent projects.
Frequently Asked Questions (FAQs)
Are ICOs legal?
The legality of ICOs depends on the regulatory framework of each country.
What happens to the funds if the ICO doesn’t reach its target?
If the ICO does not reach its target then funds are typically returned to investors.
How can I participate in an ICO?
To participate in an ICO you need to create an account on the ICO’s official website.