As the world becomes more digitized, innovative crowdfunding models are replacing traditional fundraising methods. So from one of those methods, a similar and advanced model sprung up called Initial Coin Offering (ICO).
ICOs have gained immense popularity in recent years, and many startups and established companies have raised millions of dollars through this model. So in this blog, we will explain ICOs, their work process, and the advantages of crowdfunding.
ICOs – What Are They?
An Initial Coin Offering is a type of crowdfunding that leverages blockchain technology. In this model, an enterprise generates revenue by issuing new digital tokens to stockholders or investors.
You can purchase tokens from companies worldwide without any restrictions. Overall, the ICO investment process is relatively open to anyone with a crypto wallet to start shareholding in ICO. However, certain investors may need to associate with a precise exchange for the transactions.
The planning of ICOs starts with a white paper that plans its roadmap, growth, targeted market, technical aspects, and timeline. It also includes details for each token’s price and duration to be completed for the ICO. Once the white paper is published, investors can buy tokens using cryptocurrencies. The generated fund by an ICO is later used to develop a crowdfunding platform or work on a project.
How Does An ICO Work?
ICOs are typically conducted in phases, each with a different price for the tokens. Early investors can buy tokens at a lower price, while later investors may have to pay a higher price.
Once the ICO is accomplished, tokens appear in the list of cryptocurrency exchanges, and any investor can trade them. Now let’s dive into a few steps on how ICO works:
● Investment Target
Each business venture aims to maximize its profits, and every initial coin offering (ICO) aims to secure the highest possible funds from the market. For this purpose, a company must create a well-defined concept and target potential investors for funding. The company must devise a plan to establish a fundraising goal, enabling it to attract many investors.
● Token Creation
To create tokens, the startup needs to create a smart contract on a blockchain platform like Solana and Ethereum. The smart contract outlines the rules of the ICOs, including how many tokens will be created, the price of each token, and the duration of the ICOs. Once the smart contract is created, the startup can sell investors tokens in exchange for cryptocurrencies like Bitcoin, Polygon, or Polkadot.
These are stored in the digital wallet of the investor. Token creation in ICOs is a complex process that requires a thorough understanding of smart contracts and blockchain technology. It’s important to ensure that the ICOs comply with regulations to avoid legal issues in the future.
● Campaign Promotion
Marketing and promoting a product or service are crucial for the success of any business. Without proper promotion and marketing, no business can thrive. Effective marketing strategies can make a business talk of the town and attract more investors through crowdfunding. Implementing correct and effective strategies is imperative to increase the probability of success.
Ultimately, the success of a crowdfunding campaign promotion strategy depends on several factors, including the quality of the product or service, the strength of the campaign messaging and branding, and the ability to effectively speak about the value proposition to potential backers and investors. Crowdfunding campaigns can gain traction and secure the funding they need to succeed by focusing on these key elements.
● Initial Offering
To ensure a well-planned advertising strategy, multiple rounds can be organized. The company can then utilize the funds received from the ICO to introduce a new product or service. Likewise, the investors can expect to use the tokens acquired to gain benefits from the product/service or wait for the tokens’ value to appreciate. This approach can lead to a successful outcome for both parties involved.
Benefits Of ICOs For Crowdfunding Campaigns
ICOs offer several benefits to crowdfunding campaigns.
- They allow companies to raise funds quickly and at a lower cost than traditional fundraising models.
- ICOs are more accessible to investors worldwide, as they can participate in the ICO using cryptocurrencies.
- ICOs allow investors to invest in new and promising projects that may not be accessible otherwise.
- ICOs are a more decentralized form of crowdfunding, as they do not require intermediaries like banks or venture capitalists. This eliminates the need for complex paperwork, reduces the cost of fundraising, and provides a more transparent and democratic process.
Peer-To-Peer Exchange And Its Role In ICOs
Peer-to-peer exchange is a crucial component of ICOs. P2P exchanges enable investors to sell and buy tokens straightforwardly without third-party indulgence. Thus it becomes cost-effective and efficient for trading. Peer-to-Peer exchanges also provide liquidity to the market, which is essential for the success of an ICO.
However, P2P exchanges are not without risks. They are vulnerable to fraud, hacking, and market manipulation. Therefore, choosing a reputable exchange and conducting due diligence before investing in an ICO is decisive.
How To Participate In An ICO?
Participating in an ico is relatively easy.
- Investors must create a cryptocurrency wallet like MyEtherWallet or MetaMask.
- They must buy the required cryptocurrencies, such as Bitcoin or Ethereum, and transfer them to their wallet.
- Investors must visit the ICO website to register and follow the instructions to buy tokens.
- Before investing in an ICO, going through the project details and white paper is essential.
- Investors also need to assess the project and its team, competition, and potential in the market.
Success Stories Of ICOs In Crowdfunding
Despite the risks and challenges, ICOs have successfully raised funds for several innovative projects. For example,
Ethereum raised $18 million in its ICO in 2014, which has now grown into a $200 billion market.
Another success story is Ripple, which raised $93 million in its ICO in 2013 and is now valued at $11 billion.
BitPesa, a Kenyan startup, raised $1.1 million in its ICO in 2017, which enabled it to expand its operations across Africa.
MobileGo created the first mobile game to obtain currency, holding about $53 million ICOs until April 2017. And of their $53 million, 50% was consumed by the market.
Basic Attention Token
They help users to vary advertising-enabled services holding ICO that raised $35 million in just 30 seconds. They run in the ticker bate and support Brave browser extension for operations.
ICOs have also successfully raised funds for startups in emerging markets where traditional fundraising models may not be accessible.
Future Of ICOs In Crypto Crowdfunding
ICOs have come a long way since the first ICO was conducted in 2013. In 2020, the total funds raised through ICOs were $4.8 billion, despite the COVID-19 pandemic.
The future of ICOs in crypto crowdfunding looks promising as more companies and startups are embracing this model.
However, the future of ICOs also depends on how regulators respond to this model. Some countries have made laws and regulations to protect investors from manipulation and market fraud. More regulations will likely be implemented to ensure transparency and accountability in the ICO process.
In conclusion, ICOs offer an innovative and accessible crowdfunding model that leverages blockchain technology. ICOs provide several benefits, including lower costs, accessibility, and decentralization. However, ICOs are not without risks and challenges, and investors should conduct due diligence before investing.
The future of ICOs in crypto crowdfunding looks promising, but it also depends on how regulators respond to this model. Overall, ICOs are a valuable addition to the crowdfunding ecosystem, allowing investors to invest in new and promising projects.