DEFINITION of 'Initial Coin Offering (ICO)
An unregulated means by which funds are raised for a new cryptocurrency venture. An Initial Coin Offering (ICO) is used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks. In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, but usually for Bitcoin.![ico.png]
Generally ICO are used for fund raising for new coin.Probably your next question is Why to invest in ICO ?
How to Invest in ICOs
First, you need to become aware of which ICOs are scheduled in the coming weeks. Platforms such as Smith & Crown and TokenMarket, for example, offer ICO schedules that list all upcoming crowdsales. Once you have had a browse through the list of upcoming ICOs, you can have a closer at each one to decide which one may merit an investment.
Then, to decide whether or not you want to invest in an ICO, you should ask yourself the following questions:
- Is the startup a registered company? And if so, where?
- Who is the team behind this project?
- Is the team reputable and do they have the experience and skills need to create the product or service they are raising funds for?
- Does the startup have a product or service ready or are you only investing in an idea?
- How likely will the startup’s product or service perform once it is built? Are there better competitors?
- Does the new digital token have any real-world applications or is it just being issued to raise funds?
7.Does this startup actually need an ICO to fund itself or could it simply use traditional funding routes? - How many tokens will be issued? Is there a finite supply of the new tokens?
- How many of these new tokens will be held by the startup’s developer team after the launch?
As you can see from the above-mentioned questions, it is important to be very critical towards the projects you could see yourself potentially investing in as the current hype around initial coin offerings has led to a wave of startups launching ICOs simply to make money without actually having developed anything viable. There have also been several unfortunate instances of ICO scams. Hence, conducting thorough due diligence before making an investment in an ICO is absolutely vital.
Once you have found an ICO you would like to invest in, you simply register on the startup’s ICO page when the crowdsale period has started and make your investment using bitcoin, ether or whatever other currency is accepted during the token sale.
WHY TO INVEST ?
Some of the best performing digital tokens that have come out of ICOs include Lisk (LSK), Stratis (STRAT), Qtum (QTUM), Gnosis (GNO), Iconomi (ICN), and the second largest cryptocurrency Ethereum’s ether (ETH).
Stratis, for example, offers a blockchain-as-a-service platform targeted at financial institutions and corporations that want to develop business solutions using blockchain technology. It held its crowdsale in July 2016 where it managed to raise around $600,000. The Stratis token was launched at a price of $0.007. Today, Stratis trades at around $4.50. This marks a 64,000 percent increase in value in one year.
Another example of a very successful ICO was the crowdsale of Ethereum, the decentralised blockchain platform for smart contracts. The Ethereum Project held its ICO in August 2014, where it raised around $18 million. One ether token was worth around $0.31 during the ICO and started trading at around $2.50 when it hit the exchanges in August 2015. Today, the price of ether is over $200. That means that early ether investors made a return of over 50,000 percent provided they held onto their coins until now.
While these examples show very impressive returns, there have also been enough ICOs whose tokens lost value after they started trading on exchanges.
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