What is an ICO?
easily explained

Writen by Crypthena

@Crypthena_support
October 1, 2018 – 6 min read

If there’s been one word on the lips of everyone this past year, it’s Cryptocurrency. If you have been kicking yourself for not investing in Bitcoin in 2009, we have the next best thing for you. Initial Coin Oferrings also known as ICOs.

Proceed with Caution: Investing in ICOs is risky and have a potential of being a scam.Note: If you are Cryptocurrency beginner, you might want to check out our Crypto starter guide. You can find everything you need to know about Crypto right here. This will give you a basic understanding of Cryptocurrency before we stroll down the technical aisle of ICO’s.

What are ICOs anyway ?

Picture this: You are sitting at home and have a great idea for a business start-up. Perhaps you would want to start a business in doing field research into all sorts of Cryptocurrencies. The only problem, is you don’t have the money to fly all over the world to speak to the owners of those Cryptocurrencies to get your company started. Now you could go to a bank, money lenders or your parents to ask for money, but what if you could raise money without having to give up any of your ownership of the company? Enter Initial Coin Offerings.

So this is how it works, you create a business plan (called a whitepaper in Cryptocurrency terms), make a prety website and explain why your business idea could be very useful. Then, you ask people to send you money (usually Bitcoin or Ethereum but you can also ask for Dollars, Euro’s etc.) and in return you send them back ‘’ResearchCoin’’. They hope that ResearchCoin will get used a lot and be in high circulation which would raise the value of the Cryptocurrency. You might also offer them your research if they hold a certain amount of ResearchCoin. If your research is very good, other people might want to buy your coin just to get your research, which would result in raising the value of your coin.It’s important to note that unlike an Initial Public Ofering (IPO), investing in an ICO won’t result in you having an ownership stake of the company. You’re investing in a start-up that gives you a currency which might increase in worth later and makes you money.

Who can Launch an ICO ?

Literally anyone! Currently, there’s very little regulation on ICOs in the world, meaning that as long as you get the tech set up you’re free to try and get your currency funded. Right now there are regulations in the pipe line and eventually they will be implemented. As you can imagine without any regulations setting up a fraudulent ICO is an easy thing to do. They make you believe in their project with a pretty website and a very detailed business plan, and then they book a trip to the Maldives with your money. However it is not all scams, there are diamonds in the rough. Projects like bitcoin can be bought for dimes and are going to be worth thousands if not millions in the next decade. This means only one thing, do your research if you are going to invest in an ICO.

Some things to look for:

What history does the team have with Crypto, the Blockchain or other business fields. If they are anonymous or have no real experience, that’s a warning sign. Make sure you read the whitepaper, research the team members and make sure to read the comments from our community.

Note: If you are interested in how to create your own ICO, you might want to check out our Blockchain guide. You can find everything you need to know about the blockchain right here. This will give you a basic understanding of the Blockchain before you dive in to the technical sea of creating tokens.

The ICO Conclusion:

In the end, ICOs are a incredible new way of raising money, they allow great ideas to blossom without banks or money lenders involved. They quite literally give the power back to the people.

Here are some ICO facts to get you started.

What is a Pre-ICO sale?

A Pre-ICO sale, is a sale where you can actually buy tokens before the main sale. In fact, sometimes a company needs funds for the ICO itself (advertising etc.) In that case they can pronounce “sale before sale.” Pre-sale token prices are cheaper, so it can be a very good deal. It is usually very limited and can the token sale can finish literally in seconds. Pre-sales might look like a low hanging fruit but it is not always accessible for everyone. The popular practice is to run the pre-sale for a limited number of investors, who take the role of business angels (private investors). So, a start-up can use the money raised with the pre-ICO to get marketing started for the main ICO sale.The 2 most common type tokens.

Token – token (Utility tokens), the most popular type.

Remember amusements parks from the childhood? Roller coasters, carousels, hot dogs and cotton candy? At the entrance, you’ve got tokens to buy food and enter the attraction, let’s pretend that a company is an amusement park and with the tokens, you can buy different services just as you do with carousels and hot dogs.Now, to make the analogy perfect, let’s say that you can buy lots of tokens before the park is officially opened, or when it’s just opened. If the park becomes popular, its tokens will be much more expensive. Like $10 for a hot dog. But a smart child who bought the tokens be-fore the opening will still enjoy his meal for $1.This is basically the idea behind issuing and buying tokens. If a token has an active use, it is a Utlity token.

Token – stock (Equity tokens)

In this case, an ICO is completely equal to an IPO. Usually, token-stocks are issued when a start-up does not require a crypto-technology.In this case, token holders will sometimes get dividend, fixed commission or just enjoy the stock value of the company. Cryptocurrency is all about high risk, high reward, and ICOs are in the same league. With this being said, this article is not a recommendation by Crypthena or the writer to invest in ICOs or any other Cryptocurrencies.

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