ICO in crypto: what is it and how does it work

The idea of ​​an initial coin offering (Initial Coin Offering) appeared at the dawn of blockchain and quickly gained popularity in the crypto world. Today, ICO (Initial Coin Offering) is one of the most common ways to attract funding for new projects. Let's look at ICO, a unique phenomenon in the world of digital currencies, how it helps startups raise funds, how it differs from traditional financing methods, and what key aspects an investor should consider.

What is ICO

ICO cryptocurrency (Initial Coin Offering) in its simplest sense is a crowdfunding mechanism in which a team creates a new digital asset (token or coin) and offers it to investors. Unlike classic models of raising capital, there are no intermediaries in the form of banks or venture funds, and all processes take place on the blockchain. Therefore, ICO in crypto gives an opportunity for start-up projects to quickly raise funds, and for investors to acquire promising assets at an early stage.

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Difference between token and coin

An important concept to understand in understanding how an ICO works is the difference between an ICO token and an ICO coin.

• Token is created on top of an existing blockchain (for example, Ethereum) using smart contracts. Such tokens often have additional functionality: voting rights in decentralized organizations, access to future products or services.
• Coin (coin) assumes the presence of its own blockchain and most often acts as the main means of exchange within the ecosystem. Examples of such coins are Bitcoin, Litecoin and other “native” cryptocurrencies.

Thus, when people talk about ICO coin, they most often mean a new cryptocurrency that will operate on its own blockchain. And ICO token remains a digital asset based on existing platforms.

How does the ICO process work?

• Development of concept and documentation
  The startup develops a project idea, defines a business model and technical specifications. A mandatory element is the publication of a “White Paper”, which contains a detailed description of the product, a roadmap, tokenomics and financial forecasts.
• Audit and legal preparation
  Before launching, many projects try to audit their code and smart contracts, and also consult with lawyers to comply with the laws in the region where they plan to raise funds.
• Conducting a marketing campaign
  The active promotion phase is aimed at popularizing the project in crypto communities, social networks, and media. Often, teams use popular aggregator platforms, such as ICO drops or ICOdrop, to reach a wider audience. Thanks to these services, potential investors can compare different ICOs and choose the most promising ones.
• Start of token/coin sales
  The sale of digital assets begins on a pre-announced date. Investors usually buy them for Bitcoin or Ethereum. The collected funds are sent to the project address, and participants receive the promised tokens or coins in their wallet.
• Listing on stock exchanges
  After the ICO is completed, the team tries to negotiate with major crypto exchanges to add the new asset to the list of trading pairs. If the idea is promising and the project is actively developing, investors can earn on the price increase.

Risks and benefits of investing in ICO

Advantages

• Early entry opportunity. Since ICO is conducted at the stage of project formation, the price of tokens or coins may be lower than at the post-ICO stage.
• Availability. No need for complicated bureaucratic procedures - just have a wallet and cryptocurrency (usually ETH or BTC).
• Innovations. Projects often offer new ideas and technologies that offer the potential for significant returns.

Risks

• No guarantee of success. Many startups may not live up to expectations and investments may lose value.
• Normative uncertainty. In some countries, ICOs are subject to bans or strict regulations, which can make life difficult for a project.
• Probability of fraud. The high level of anonymity and lack of strict regulatory measures attract fraudsters.

What to study before participating in an ICO

• Project Team. Explore key contributors' profiles on LinkedIn, GitHub, Twitter and check out their experience.
• White Paper. Look at how the technical details are described, what the roadmap looks like, what partners are declared.
• Tokenomics. Check how many tokens are planned to be issued, what their distribution is, what the price is, and what bonuses are offered to investors at different stages.
• Community activity. Find the official Telegram channel, Twitter and other social networks. Assess how sociable and open the team is to dialogue.

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ICO drops and other aggregators

To simplify the search for promising projects in the cryptocurrency environment, there are special platforms, such as ICO drop. They collect information about ICO starts, key project indicators, and fundraising start and end dates. In addition, these services often publish reviews, ratings, and analytics. Users can choose a project they like based on expert assessment or community opinion.

Here are some of the benefits of such platforms:

• A handy list of current and upcoming ICOs, sorted by time of event.
• Analytical reports: from brief reviews to detailed analyses of the financial model.
• Risk profile assessment: scores assigned by experts allow you to navigate new projects more quickly.

ICO in crypto has been a powerful tool for quickly raising capital for several years in a row. Projects conducting ICOs can enter the market with minimal costs and at the same time gain a powerful community of investors and users. For investors, this is a chance to increase capital by recognizing promising ideas in time. However, it is important to remember the risks and carefully study all the details before investing.

Carefully analyze the project, check the team and rely on expert opinion. Remember that ICO cryptocurrency is not only a quick path to financial success, but also possible risks associated with insufficient development of the idea or non-compliance with the law. Be vigilant and invest consciously!