ICO, also known as Initial Coin Offering is a new way in which companies have been raising money. Companies raised a combined value of $1.27 Billion in the first half of 2017 alone in the form of ICOs. Most of the ICOs issue tokens in the form of Smart contracts on the Etherium Blockchain.
In the traditional world of investment, a company goes through a strict vetting process and regulations to raise money initially or even for an IPO. Also, an IPO is not accessible to everyone making it exclusive to big traders. An ICO, on the other hand, is unregulated and is available to anyone and everyone however small their investments are. It is a simpler process of raising money by companies and investors to participate. But, this system also has some disadvantages which include bad investments due to lack of vetting process. We try to analyse ICOs and carefully consider multiple factors before we consider putting our money in.
Most of the ICOs have the following things:
This is an important document as it includes all the details of the ICO. A white paper includes everything you’d want to know before investing. This includes what the company is and why they’re raising money. It also includes details like the total money they intend to raise, number of tokens that will be made available, when they will be issued, sources of revenue and the management behind the company.
This happens even before the actual sale of the tokens for a limited amount. This is open to everyone with a discount, but there is a minimum buy-in which is enticing for large volume traders.
This is where the actual sale happens, and anyone can participate with any amounts. Some ICOs tend to give discounts for the first few contributors to get the sale going.
The tokens are issued a few days after an ICO. Since most of the ICOs happen on the Etherium blockchain, they are automated, transparent and fool-proof. These tokens are issued to your etherium wallet.
Listing on Exchanges
A few days after the tokens have been issued, they are listed on exchanges. There are multiple ways by which tokens are listed. Some companies negotiate deals with exchanges and have them list the token after it has been distributed. Sometimes, the exchange decides to add a token depending on the popularity and demand for a token. Once the listing process is completed, you can choose to move your tokens from your Ethereum wallet to an exchange that supports it and can start trading.
What to look out for while participating in an ICO
1. Read the white paper
2. See the idea and think if the idea is necessary and new
3. Is the idea worth raising money for and are they raising enough money?
4. Will it make money once it is implemented?
5. Is the team credible and capable of delivering?