Initial coin offering is a mechanism used in raising funds. It is like a refined form of crowd-funding, but not according to the common financial system. Crowd-funding aims to fund a project by raising money from a large number of people using the internet.
In initial coin offering, many people are allowed to buy new tokens in exchange for Bitcoin or any other recognized cryptocurrency. ICO projects began in the year 2014; it was employed as a means for funding new crypto projects from the general public. They are basically how cryptocurrency businesses/projects raise capital.
How Do ICOs Work?
The startup establishes a blockchain, puts protocols in place, and announces the data for the ICO. The data is in the form of what we call “Whitepaper,” which contains everything needed to be known by people looking to invest in the project. The cryptocurrency or token creator will need to join exchanges to enable investors to exchange their cryptocurrency or fiat for these new coins.
The steps are summarized below:
- The project team develops the white paper, which provides in-depth detail into what the project has to offer, how it works, and other important information about the project.
- Marketing projects; getting it to the general public. It is important to target audiences that are willing to invest. To get the right audience, you can put out your projects on unique websites with a track record of visits by cryptocurrency investors. These include websites such as Coinbase and the likes.
- And to be successful, you need a good project and a lot of marketing. One way for reaching your ideal clients is using a specialized crypto ad network, like Coinzilla.
- After marketing is successful, the project will have to request funding using any form of payment. Be it Ether or Bitcoin.
If you need to trade your cryptocurrency to the required means of payment to invest in ICOs offering, you can use trade bots such as Quantum AI to exchange your cryptocurrency with the one you need.
- In return for the investment in projects, coins or tokens are given to the investors.
Advantages Of ICOs
Liquidity: As an investor, you can trade tokens in secondary markets instead of fixing a given value in a company’s equity.
Instant Buy-in: You can buy tokens during the pre-sale stage without complications. It’s faster as you opt into the website, exchange a crypto coin or fiat, depending on the mode of payment the project uses.
It’s a great way to invest since you are going to be starting at the floor level. You can buy low and get high yields as the price increases.
Decentralization: Funds invested aren’t controlled by a central figure.
Disadvantages Of ICOs
Easy to Hack.
Fraud: There is a high chance of fraud. Hence, the need to thoroughly investigate projects before jumping in.
How To Invest In The Right Project
Read Reviews: Before deciding to invest in any project, make sure to read unbiased reviews about them, as it will guide you into what you are going into. Ensure to check all critiques and opinions given by the investors before you get a general glimpse of the project.
Give ear to Rumour: They are not credible sources of information, but they can provide leaked information about the ICOs. But, make sure always to consult ICO experts for critical analysis and confirmation.
Avoid too-good projects: We aren’t saying a project that poses too good can’t be legit. You have to be careful of the hype. Avoid projects that promise unimaginably high returns on your investment.
ICOs are indeed suitable mechanisms to help a project gain supporters, thereby fostering the project’s vision. It’s also a great investment tool for investors. However, a critical look into any project you want to invest in will put you on a safer side.
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