What is ICO?

BOM Coin
5 min readApr 25, 2022

If you want to invest in crypto, you should know what an ICO is? Many cryptocurrencies introduce their products to the world through ICOs. Besides, ICOs have become a significant source of seed funding for cryptocurrency startups.

But questions like what is ICO and how it works always beg for answers.

What is an ICO?

ICO is short for Initial Coin Offering. It is a traditional way in which blockchain startups raise funds. In ICO, a crypto company creates parts of its tokens and sells them to early investors. These blockchain companies may exchange their tokens for cash, Bitcoin, or Ether. ICO provides a way for investors to support the project.

ICO enables startups to bring investors with shared interests and goals. Guess what? Each investor wants the project to be successful. That’s because the presale value will rise, and investors will gain.

Besides serving as a fundraiser, ICO buyers can use the tokens for business transactions, depending on their benefits.

Types of ICO

  1. Private ICOs: Here, only accredited investors can participate in the ICO. The company can thus enforce a minimum investment amount.
  2. Public ICOs: Public ICO targets the general public. It creates room for anyone who would want to be an investor.

Owing to regulatory concerns, companies prefer private ICO to public ICO. Now that you have explicit knowledge about ICO, let’s see how it works.

How does an ICO work?

You may have a brilliant idea for a cryptocurrency project but lack the funds to support it. Do you think an ICO will help raise funds for your project? Then the first step is to figure out how you will structure it.

You can structure your ICO in three different ways. They include:

  • Fixed supply and fixed price: A company may set specific financial goals, which means each token has a fixed price and a fixed total supply.
  • Fixed supply and varying price: The amount of funds the ICO receives depends on each token’s price.
  • Varying supply and fixed price: ICOs may have an irregular token supply but a fixed price. Here, the amount of funding received by the investors determines the supply of tokens.

After deciding which structure will favor your project, the second step is to create a white paper. Potential investors can access the white paper through the company’s token website. It contains essential information relating to the ICO, such as:

  • The goal of the project
  • What needs that the project would fulfill at the end of the ICO?
  • How much money does the project require?
  • The company will accept the type of currencies (BTC, ETH, USD).
  • The length of the ICO campaign.

Before releasing the white paper to the public, ensure the information in it is detailing and transparent. The aim is to encourage supporters and enthusiasts to invest in your project by buying your project tokens.

The money investors raise in an ICO may be less than the minimum amount required by the ICO’s criteria. If this happens, the company may return all the money to the project’s investors. The ICO would then be termed “unsuccessful.” But, if the project meets the funding requirements, you are one step closer to reaching your project goal.

Can you launch an ICO?

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Surprisingly, no regulation in the US stops anyone from launching an ICO. Once you have the technology, you’re free to start an ICO.

But the absence of regulators opens the industry to scammers who may run away with your funds. Worth mentioning that it’s pretty easy to scam someone through ICO.

How could you avoid a scam ICO?

There’s a possibility of losing your money if you invest in a fraudulent ICO. Here’s what you could do to be safe:

  • Research the people behind the ICO before investing in it.
  • Make sure the product’s founders already have a verifiable history of success with cryptos.
  • Be sure about the project’s goals through their websites and white papers.
  • Go for a transparent company. An organization that wants investors should have 100% transparency.
  • Study the ICO’s terms and conditions.
  • Ensure the ICO funds are sent to an escrow account. A wallet with several access keys is more secure and less likely to be a scam.

What should you have before investing in an ICO?

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Get at least two cryptocurrency wallets before you invest in an ICO. You can only buy the new token with existing crypto in most cases. So:

  1. Wallet One holds established crypto like Ethereum or Bitcoin
  2. Wallet two keeps the newly launched cryptocurrency. Extra cryptocurrency wallet

How can startups benefit from ICO launching?

Several benefits exist for startups who want to launch an ICO. Although fundraising is the most apparent benefit, other advantages include;

  • Creating awareness about the project
  • Promoting brand loyalty and building a network of investors
  • Facilitating token growth and development etc.

Bottom Line

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The rise of digital currencies is helping increase the popularity of ICOs. As expected, ICO remains a viable option for startups to raise capital. While investing in an ICO can be tempting, ensure you do not invest more than you can afford to lose. Besides, you should confirm the project has the potential to succeed.