All you need to know about Initial Coin Offering (ICO) in Cryptocurrency Industry.

Initial Coin Offering (ICO) in cryptocurrency industry is equivalent to initial public offering (IPO) where a company seek to raise money for a project but in ICO the money raise is to be used in creating a new coin, service or app, funds can be raise for all these projects through ICO.

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As an investor who is interested, can buy into an initial coin offering in order to receive a new cryptocurrency token from the company issuing the ICO. This token may have some utility which is similar to the product or service been offered by the company, or it may just be in form a stake in the company project for all those willing to buy the ICO. Over the years, some ICOs have proving beneficiary to their investors through massive return and some have turned out to be fake or may have performed extremely poorly.

How did an Initial Coin Offering (ICO) Works?

Before launching an ICO to raise money for a cryptocurrency project, the project organizers must first determine how they are going to structure their ICO. ICOs can be structured in many different ways, which are:

-Static supply and static price: In this structure, a company can set a certain funding goal or limit, this means each token sold in the ICO will have a preset price, and also the total token supply is fixed.

-Static supply and dynamic price: This structure means an ICO usually have a static supply of tokens and also a dynamic funding goal. What this applies is that the amount of funds received for the project through ICO will determine the overall price per token.

-Dynamic supply and static price: As seen in some ICOs which will have dynamic token supply but the price is static, this is done because the amount of funding received is what will determine the total number of supply.

Structuring ICO is usually accompany with the project white paper which is created by the crypto project team. These two side by side makes investing in the project appealing to any investor and all this information can be found on a new created website which is dedicated to the token. Promoter of the project make use of the white paper to explain in details the important information relating to the ICO. An example of information on an ICO white paper is show below:

• What the project is all about.
• What the project will fulfill after been completed.
• How much is needed to complete the project.
• How many virtue token the founder will keep.
• The type of payment (currencies) which will be accepted.
• How long the ICO campaign will last.

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The project releases the white paper as a fraction of its ICO campaign, which they design to encourage enthusiasts as well as supports of the project to buy some of the project token. Investors usually use fiat or digital currency in purchasing the new tokens. Although, it becoming increasing common for investor to pay with other form of crypto especially Bitcoin or Ethereum. These new token issued to investors is the same as shares of stock sold to investors in an IPO.

During an ICO if all the money raise is not up the minimum amount required to kick start the project than what usually happen is that the project management return each investor money and the ICO would then be deemed unsuccessful. In situation where the funding required are met within the expected time, then the money raised will be spent in archiving the project goals.

Who can launch an ICO?

ICO can be launched by anyone due to the very little regulation post on ICOs in most advance counties. So anyone with the proper resources such as access to proper tech can launch ICO for a new cryptocurrency. With this lack of strong regulation, we have seen how many people misuse this privilege by launching a fake project to scam investors of their money.

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As an investor looking for a new cryptocurrency project to invest in and you come across an ICO the first thing to do in order to know if it worth investing in or not is to look for the project leads history with blockchain or crypto. If it seems the project do not have anyone who is relevant in that field,who you can easily verify his\her experience than that is usually a red flag.

Although, they is never a guarantee of a massive return even when the project is not a scam but at least you know you have invested well. Here are some tips to avoid ICO scams.

Make sure the project developer have a clear definition of their goal and success. ICOs usually have a straightforward and an understandable white papers which clear out all concise goals.
Transparency is important so an investor should look for transparency form the company lunching the ICO and it has to be clear that nothing is been hidden.
Review the ICO’s legal terms and conditions, reason is because traditional regulators usually do not oversea this space but rather it is an investors responsibility to ensure an ICO is legitimate.

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Conclusion

ICOs is a great way for company raise funds for launching a new cryptocurrency but some people has turn this into a scamming venture which means as an investor you need to be careful before investing. Basic understanding of cryptocurrency is very important before investing in ICO and you need to do your research and exercise high degree of caution.

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