ICO stands for 'initial coin offering', which means as much as the first issue of a new cryptocurrency.
An ICO is actually the crypto version of crowdfunding. As an investor you buy coins that belong to a starting blockchain startup. If the startup becomes successful, your coins can become worth more.
Why an ICO?
Imagine: you have an idea for a blockchain application. By creating coins in advance and selling them you can quickly finance your business plan.
At a later stage, the coins that you have sold can then be used on your blockchain platform. For example, tokens to pay fees on the platform.
The more people use your platform, the higher the number of transactions on the corresponding blockchain. To pay all transaction fees the demand for the ICO coin also rises.
For investors this is favorable because the price of the coin is likely to rise. Although fraud is sometimes committed with ICOs, they can often be a way of making great returns. On the other hand, there is also a huge number of ICOs that turn to dust within a year. You have lost your money. Participating in an ICO is therefore not a quick rich scheme.
How does an ICO work?
Most ICOs start out with some smart ideas and a plan to distribute the initial coins. A plan for a blockchain project is usually recorded in a whitepaper. You can easily make such a coin on a platform like Ethereum. People who see your plan can in turn participate in the ICO with the use of ether.
You eventually use the ethers to build the product (the blockhouse application). That starts with a test version. Also called 'testnet'. Sometimes you launch a number of different versions of this.
If everything goes well and the platform works as you want, you launch the so-called mainnet.
This is the final version of your blockchain platform. That does not mean that your platform will never change or be changed.
How do you participate in an ICO?
First you start with preliminary research. Make sure you have a very solid basic knowledge of blockchain, bitcoin, cryptocurrency and ICOs. In principle, as a novice crypto investor you do not want to invest an ICO. The chance that you commit an expensive mistake is simply too likely.
Websites such as ICO Drops and ICO Ratings keep track of which ICOs will go live in the coming period. They also give the ICOs a score, but remember that these platforms are commercial parties. There is a reasonable chance that these websites are paid by ICO’s to promote them.
Here at the office, colleagues use such platforms as an overview for finding ICO. Not as a source for information. Do your own research and base your choices mainly on your own judgment.
In addition, it is important that you never buy the ICO tokens from an exchange (such as Binance, Kraken or Bittrex). Usually the tokens you buy are transferred to the ether address from where you send the payment. On an exchange this comes from one big pot.
Do you want to buy tokens from an ICO? Then do that from an ether address that you manage on a wallet yourself. Sending from your own private wallet that you have access to the private keys to means you will receive the new tokens you’re entitled to.
What are the dangers?
Financial risks are associated with every investment, but investing in ICOs is extremely risky. Firstly, according to the AFM, ICOs are a breeding ground for fraud and fraud. Research has been published showing that over 80% of ICOs are fraudulent .
Anyway, there are of course honest ICOs that do want to build an incredibly cool blockchain platform. However, that does not mean that the risk has passed. According to bitcoin.com in 2017 roughly half of all ICO’s have thrown the towel in. Investing in these would therefore also be money down the drain.
Finding a good and honest ICO requires really trained eyes and a lot of knowledge about blockchain and cryptos. In addition, you must be prepared to lose your investment.
A lot can go wrong with an ICO. Yet that does not mean that there have been no successful ICOs. Most cryptos have started as ICO. Some of them have also achieved a very high return.
Below is a summary of three current or successful ICOs:
Once upon a time the new cryptocurrency Ethereum was an ICO. The term ICO did not exist yet, so it was just called a crowdsale. An ether that can cost hundreds of euros nowadays was only worth 31 cents during the crowdsale.
The great thing is that ether partly owes that price rise to all ICOs that have been issued on the Ethereum platform. Ethereum makes it possible to build tokens on their blockchain. A token is similar to a cryptocoin but does not have its own blockchain.
Do you want to buy ether yourself to invest in an ICO? The easiest way to do this is via BTC Direct. Via the button here on the right you can buy ether in three steps!
During the ICO phase , this cryptostartup was still called Antshares. Actually meant as a serious rival to ethereum. NEO, like Ethereum, has a blockchain on which you can build decentralised apps. An important difference is that you do not have to learn a special programming language to build a NEO app- unlike with Ethereum.
During the ICO in 2015, one Antshare cost you about 3.2 cents. With an investment of a thousand dollars back then you would already driving around in a Lambo by now.
This ICO makes a crown. It is not only one of the first ICOs but also one of the most successful ever. NXT, a blockchain platform for the financial sector, raised 16.5 thousand dollars at the time.
Are you ready for this? If you invested a thousand dollars in this ICO then you would have made it to some kind of rich list. At the all-time high this coin reached a whopping $2.15. Your thousand dollars would have been worth a staggering $130million.
An ICO is a method by which start-ups can finance blockchain projects. If the platform becomes popular, the return on your investment can increase significantly. Nevertheless, we advise beginners not to invest in ICOs.
Investing in cryptos is already quite risky for many. Investing in an ICO carries an extra element of risk. More than half of the ICO's from 2017 are now defunct.
If you already have more experience and you dare to invest in an ICO, returns can potentially be massive. A small look at successful ICOs shows us excessive returns. However, not every ICO is successful. In fact, according to research, the majority fails within a year.
Do you want to invest anyway? Invest first in yourself and buy a good book about blockchain and cryptos. Take your time and invest with intelligence and knowledge and invest only money that you can afford to lose.