Disclosure: I am a complete newbie in this space but i feel I've learnt enough to avoid headaches to newcomers like me. I will try to explain in plain English what is going on with ICO's. This is not a financial advice to invest in ICOs. Please do correct me if am wrong in any places
What is an ICO?
The startups have always come up with unique ideas to raise funds to give life to their ideas. But one of the most prominent and fancied word in today’s startup is to raise funds through the ICO or the Initial Coin Offerings. They are much similar to IPO or "Initial Public Offering" but instead of stocks, coins or tokens are given to the investors in an ICO.
During an ICO the tokens or coins, depending on the type of startup, are given out to the investors at a discount. After the completion of token sales the tokens are listed on exchanges and much like every other market if the price surges, often due to speculations, the investors have made a profit.
SOURCE
Coins VS Tokens
Tokens are a representation of a particular asset or utility, that usually resides on top of another blockchain. Tokens can represent basically any assets that are fungible and tradeable, from commodities to loyalty points to even other cryptocurrencies!
Coins are digital currencies like Bitcoin in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds. Coins are calculation units belonging to and moving within decentralized, cryptographically protected database – blockchain.
To put in more simpler words with my understanding,
Coins are Cryptocurrency which operates independently of any other platform. For eg. Bitcoin, Dash and Litecoin.
Tokens are cryptocurrency which requires another platform, such as Ethereum, to exist and operate on. For eg. OmiseGo, Golem, TenX, Tether & Gas.
Coinmarketcap has listed both coins and tokens
COINS
TOKENS
HOW DOES AN ICO WORK?
Almost all the token sale follows similar steps:
- The development team Pitches their idea of viable blockchain project(often through websites) .
- The team offers a white paper which explains the whole concept of the project including possible revenue streams, their business model, future expansion plans and much more.
- Sometime, the team may also provide a working prototype to understand the project, however, it is not a necessary condition.
- The team starts marketing their Initial Coin Offering through social media, Ads, Blogs, and other possible marketing outlets.
- The team provides the informations regarding the circulating supple, amount that would be locked, utility of the tokens, type of token they offer e.t.c
- The token sale is launched and coins are distributed to the bidders.
- After successfully completing the token sales, the tokens trading is made available on the exchanges.
HOW TO PARTICIPATE IN AN ICO?
There are two ways you can participate in an ICO. First method is buy directly involving in the crowdsales and the latter one is by purchasing it once the tokens or coins get listed on the exchanges. For the direct method these are the steps you need to follow:
- You must own BTC/ETH/LTC or other major coins the ICO asks for, I have seen ICO that only accept bitcoins while there are ICO's that accept a wide range of cryptocurrencies
- Put your BTC/ETH on a wallet that will be compatible with the operation (instructions are usually provided by the token first owner)
- Get to the ICO when it starts and send in your contribution how much ever you like and within the asked limits. There are ICO's that sold out within a matter of few seconds, So being available is really important.
- And after the ICO has ended they send the propotional amount of tokens based on your contribution to the wallet address you used to send your contribution. Choosing the Wallet is very important since not many wallets supports the storage of every tokens.
And after acquiring the coins or tokens it is your wish to hodl on to the tokens or letting them go. If you wish to sell them you can do it once they get listed on exchanges.
EXAMPLES OF SUCCESSFUL ICO
Wrapping up
The Initial Coin Offerings have taken a big leap in recent times and are gaining popularity as we write. Through this article I have tried to give you a very minimal insights into the world of ICO, In the coming days i will write about the types of ICO, the type of tokens, what are the things that we have to look for in an ICO and much more topics related to ICO.
