Cryptocurrencies are the latest newest sensation and phenomenon of the Financial-Tech world. The first cryptocurrency, Bitcoin, was launched in 2009, and this practically gave birth to modern day cryptography and Blockchain Technology. There are currently thousands of digital currencies and assets on the market. Initial Coin Offerings or ICOs or crowdsales or tokens or token swaps (or other names they are given) are one of the popular mediums through which cryptocurrencies enter the market due to the fact that Blockchain start-ups and some established companies use them as a means to fund-raise by tokenizing their operations. This guide will help you understand the basics of ICOs or token sale, their history, advantages, risks, evaluation and trading tips.
Initial Coin Offering (ICO) is a fundraising mechanism used by Blockchain Tech start-ups or even existing Blockchain enterprises working on new blockchain projects. An ICO or token sale is akin to an IPO, but with some notable differences. An ICO provides a chance to trade future crypto-currencies or tokens against existing cryptocoins having current liquid value such as Bitcoin or Ethereum. They also trade against other digital assets and fiat such as USD, EUR, GBP or any other such related fiduciary currencies.
Private ICOs or token sale, known sometimes as Pre-ICO or private placement, is the token sale event that Blockchain enterprises run or participate in before the official or public crowdsale or ICO campaign goes live. Private sale usually involves deep pocketed acredited individual investors, Finance Houses, Venture Capital firms, Private equities, Fund houses, market makers and other related entities. For the purposes of prudence, Private-ICOs ideally make use of separate smart contracts and consequently wallets, from the main ICO event - This is informed by the need to avoid a mixture of Private sale funds with the main sale event to enable proper and easy account reconciliation and audit. Sometimes, funds to accrued from pre-sale goes to cater for the expenses incurred on the way to launching the main ICO – this is if projects eventually choose to hold public sales if they do not meet fundraising targets with private sales. Some of the expenses include paid promo ads, strategic recruitment and meet-up costs to help whip up investor interests and so on.
The process starts with pre-announcement of the cryptocurrency project on the project website, and cryptocurrency social platforms such as Bitcoin talk, reddit, Twitter, Telegram, Discord etc. This is followed by the publication of a white paper or an equivalent project summary or business plan which discusses every detail about the project. This material will describe the project’s business model, development roadmap, integration of the currency within the project, the team behind it, and its ultimate value. The pre-announcements done on the core community platforms such as Reddit or Bitcoin Talk. The community gives impressions and feedback to help shape-up the final outlook of the project and its marketing campaign.
Token offering begins after the pre-announcement. The project team offers a contract (usually a smart contract built on enabling Blockchains like Ethereum, Stratis, Hyperledger, Waves, QTUM, EOS, TRON etc, describing the terms of the transaction, life cycle of the project, target investment amount, and project deadlines. It also does include the financial instrument to be traded, which is usually a digital token or asset depending on the project’s make-up. The team could decide on which approach would be better for them, either engaging efforts more into public sales or private sales.
This is one of the many keys to conducting a successful token sale. Even projects seeking to do more of private sales would need to have some good PR and reviews about them to make them generally accepted in the closed circles of private Blockchain investors. Once the marketing phase is complete, the actual sale of cryptocurrencies or tokens commences. The two popular sale channels chosen by the companies include currency exchanges or special project sites organized by the investor’s office or other industry connectors.