What is an ICO? An ICO (Initial Coin Offering) is a type of fundraising mechanism which allows new project ventures to sell their crypto tokens in exchange for etherum and bitcoin. For finance experts, an ICO is the cryptocurrency version of an IPO. In an IPO (Initial Public Offering), investors will purchase shares in a company.
Unlike the term IPO, Initial Coin Offering is a newer and less known term. Although in the blockchain world, ICO is the hot topic. With any ICO there are always mixed reviews, with many saying that the projects are unregulated and allow unfair amounts of capital to be generated. On the other hand people are saying that ICO’s are innovative and a fresh new idea which the marked needs. SEC (The U.S. Securities and Exchange Commission) has announced that they have changed the way in which ICO’s are viewed by the authorities.
The DAO is the most well known ICO and lead to the change in way investors look into cryptocurrency capital. The essence of funding a new cryptocurrency has been turned on it’s head!
Now, it is common practise for investors to look at the Howey test. If a cryptocurrency does not pass the test, it will be subject to restrictions put in place by SEC.
Thanks to new cryptocurrency technologies such as the ERC20 Token Standard, starting an ICO is easy than ever and structuring one is easy to people who are interested. Technologies such as ERC20 can structure the initial development of the ICO and create cryptographic assets independently. The way in which the majority of ICO’s operate is by an investor sending money to a smart contract that will redistribute the same value in the new crypto token.
Most people can get involved with ICO’s and the rewards can be great, the restriction is that the token cannot be a security. This is because the money is coming from international investors, so the total sum of funds can be huge. This can lead to issues because most ICO’s raise capital before they even launch. Therefore the investment is a huge risk and its all guess work. For the person starting the ICO, it is a good way to generate capital fast and ensure development continues.
A History Of ICO’s
The very first cryptocurrency launched by an Initial Coin Offering was Ripple, a now well know coin. Back in 2013, Ripple Labs initiated the development of the Ripple payment system and made 100 billion XRP tokens. Ripple Labs then sold the token in order to fund further development of the Ripple token and payment playform.
In the same year, a different company, Mastercoin, said they would further the Bitcoin platform to allow smart contracts and tokenise Bitcoin transactions. The person who make Mastercoin then sold it against bitcoin and earned somewhere in the region of $1 million USD.
Other crypto coins have been introduced to the market with the help of an ICO, such as Lisk. The coins sold for $5 million USD in 2016, this was mainly profit. Arguably the most well known ICO coin is Etherum. In 2014, Etherum Foundation sold their coin (ETH) for 0.0005 Bitcoin each. This amounted to a whopping $20 million USD. For Etherum, this is monumental because ETH is now one of the largest crowdfunded cryptocurrencies to date. The capital is being used in the further development of Etherum.
Big Profit and Big Losses
For investors, ICO’s can mean massive amounts of profit in a few days. Etherum for example, entered the market at 0.0005BTC and now sits at 0.05BTC. This is a 10,000% profit.
REP (Augur token) is another example of a successful Initial Coin Offering. When it first sold for 0.005BTC and now goes for 0.01BTC. This is a 100-500% profit increase.
Unfortunately, it doesn’t all end well with ICOs – with many investors losing their money. Currencies like Lisk, Omni and IOTA did not retain their value in Bitcoin. Some coins are based on image and promise unimaginable profits and a “get rich quick” scheme for investors. As you can already imagine, the coins do not actually make people millionaires.
As long as the ICO markets are unregulated, there will be big profits and equally as large losses!
How Can You Make Money From ICOs?
To make money on ICO‘s you first have to know what makes a successful cryptocurrency. In the past there have been some notable Initial Coin Offerings which are the perfect example of a ‘successful ICO’.
Mastercoin debuted plans in 2013 to build a layer on top of Bitcoin and increased profits by 10,000%. After the success of Mastercoin, the company came out with Counterparty and Omni platforms.
Etherum is the most successful Initial Coin Offering and it had a whopping presale of 60mio ETH. Etherum group raised a huge 31,500 Bitcoin. This is widely recognised as the largest crowdfunding of all time. It also started the Etherum coin which is vastly successful too.
Future ICOs That Are Promising
Etherum paved the way for other newer ICOs to gain traction and become successful. Etherum fans are waiting for Gnosis ICO, which is the next ICO to take the market by storm.. or at least expected to.
EtherEx is an upcoming Etherum exchange, this is also highly anticipated. Both EtherEx and Gnosis are part of the decentralised ecosystem of Etherum.
Lastly, we look at Akasha, a decentralised social network which is also ran by Etherum’s blockchain. It’s expected to have an ICO but a release date is not yet available.
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