What is ICO
ICO – Initial Coin Offering means initial coin placement. ICO is a mechanism for raising funds in order to obtain public funding for promising developments and new ideas.
Developers often lack funds to implement ideas. Banks rarely and reluctantly fund new ventures. In this case, the ICO mechanism comes to the aid of project implementers.
Developers issue tokens and organize their sale to people from all over the world, that is, conduct ICOs. ICO is the sale of tokens.
For organizers, an ICO is the easiest way to raise funds from investors from around the world. They create a website – a business card, an ICO presentation, and prepare a Whitepapers legal document. In this document, they describe all the ideas of their project and the mechanisms for their implementation. They explain to investors why they believe that the project will be profitable. Whitepapers has a roadmap, which sets out the time for the implementation of the main stages of the project.
A feature of the ICO is the issue of tokens, an analogue of shares. But unlike stocks, ICO tokens are often not provided with anything. ICO tokens are usually the internal currency of the ICO platform. For tokens, payment is made for services on the platform. The goal of the ICO organizers is to make tokens popular and necessary for the population. The more often tokens are used, the more their need is, the higher their price.
An example of a successful ICO is the Ethereum cryptocurrency ICO. In the summer of 2014, 1 ETH was worth less than 1 cent. Now 1 ETH costs more than $ 400. The main thing is that people have a need for tokens. The majority of new ICOs are launched on the Ethereum network; ICOs usually collect all their money in ETH. Therefore, the need for ETH is only growing, and with it the price of cryptocurrency or the ETH token is growing.
The same thing should happen with the token of any ICO. There must be a need for it. When buying tokens of a specific ICO, an investor should first of all ask a question: who needs this? Who will use ICO tokens? How big will the need for tokens be? How often will they be used? And if the organizers of the ICO can convince investors that over time, the need for ICO services and its tokens will only grow, then the price of tokens will increase. People will buy such tokens, seeing their perspective.
What is the difference between ICO and IPO
Many public companies conduct IPOs to attract funds from professional investors. But unlike the ICO, where funds are collected from a population that is often not economically competent, professional investors participate in the IPO, that is, brokers who have licenses for carrying out exchange transactions and specialized education. Before getting on the IPO, the shares of the company undergo a thorough assessment and examination. Its capitalization, market value, etc. are estimated. The company itself is subject to registration with the Securities Commission as a participant in the stock market.
Before entering the IPO, the company already has its own asset base, history, and operating time. Professional investors know what to expect from this firm. Using statistics on previous years of the company and its tax reports, they can even approximately calculate their future profit.
In the field of IPO, everything is quite clear and transparent. ICO is surrounded by uncertainty and fog. First of all, companies that do not yet have a finished product often participate in ICOs. There is no story. They have no assets, no capitalization, no accounting statements for the past year. Investors have nothing to compare their estimated returns. It remains only to believe the statements and calculations published in Whitepapers – an official document of the ICO. But Whitepapers cannot be objective. It is made up of ICO participants themselves, not independent experts. Therefore, all calculations carried out in Whitepapers need to be questioned. You need to independently research the market and check all the numbers and statements.
The goal of the ICO organizers is to raise as much money as possible to implement their ideas, which is why their statements are somewhat embellished. They focus on their strengths, while forgetting about the weak. But the investor himself must look for weaknesses. He risks his money.
But the profit on the ICO can be much more than on the IPO, where everything is calculated and predicted. ICO tokens can grow much faster than IPO stocks, but they also fall much stronger, because unlike IPO stocks, ICO tokens are not provided with anything except the idea.
Advantages and disadvantages of IPO
1. Registration of the company in the securities commission
2. Issue of shares in accordance with the requirements of regulators
3. Equity of shares of company assets
4. Mandatory audit
5. The history of the company and public accounting reports, which makes it possible to predict the growth of shares based on the company’s profit for previous years of operation.
1. Only professional investors registered in the securities commission or the public through intermediaries (brokerage companies, banks) can buy shares.
2. A large amount of entry.
Advantages and disadvantages of ICO
1. ICO tokens are available to everyone
2. Low entry price
3. The opportunity to participate in the implementation of a promising idea
1. High risk. According to statistics, 81% of all ICOs held were unsuccessful, that is, they did not bring declared income to investors. Hackers stole money from 10% of all ICOs conducted.
2. ICO tokens are not provided with anything.
3. High volatility of tokens.
4. Often ICO tokens contain vulnerabilities that hackers find and steal. Therefore, tokens are very difficult to store and use as an investment tool. Tokens of some ICOs simply disappear from the wallets.
Who needs an ICO
1. To the organizers
ICO is necessary to raise funds for the implementation of a new promising idea. This is public funding.
2. The state
Any realized promising idea is taxes to the state budget and new jobs. Increasing employment and welfare of the country. After all, it is not for nothing that countries such as Switzerland, the United Kingdom and Japan most often encourage ICOs. They provided a normal legislative framework with fairly strict but fair regulation. ICOs in these countries thrive and contribute to the development of national economies.
3. The population
New jobs, cheaper services, security and transparency provided by blockchain technology. Erasing international borders and openness to the world.
The opportunity to participate in promising developments at the stage of their development and implementation. The main thing is to find the right ICO, because 81% of all conducted ICOs have not reached the declared results. But Ethereum tokens from the summer of 2014 increased from 1 cent to today’s $ 400, and Ripple tokens only increased in 400 in 2017! Time. For comparison, the same Bitcoin in 2017 increased 20 times.