What is an ICO? ICO Meaning and Definition

(Last Updated On: January 20, 2018)

ICO(Initial Coin offering)  is a mechanism to crowdfund Startup projects or existing projects using cryptocurrency tokens. ICO started as a way to crowdfund blockchain projects using platform tokens but is now being used to raise money for all kind of projects new projects or existing projects by issuing tokens which can have some utility on the platform or simply be a token to raise money. ICOs are disrupting the existing venture investment and are creating a brand new way of raising money

 

Here is what some of the best thinkers in the world are telling saying about ICOs

Contents

Structure of ICOs

ICOs are structured in some of the following ways.

1. Private pre-sale followed by public pre-sale followed by public flash sale
2. Prive pre-sale followed by public sale
3. Only a public sale
4.  Dutch type public sale with prices determined public

History of ICOs( Initial Coin Offerings)p>While crowdfunding as a means of financing has been around for many years. With many different models tried and used in the market. Some of the popular models for crowdfunding are :

1. Donation
2. Equity
3. Interest
4. Reward

ICO or Initial coin offerings do not neatly fit into any of these models. So any crowdfunding project cannot be called an ICO.

ICO is a very recent phenomenon. One of the first major tokens which were offered in an ICO to the public is Ripple.Ripple offered tokens to the public back in 2013. As is typical with Crowdsale of ICO the tokens were used to help build the Ripple platform.

Another early ICO was erstwhile Mastercoin now named as Omni which was designed as a cryptocurrency and communication platform on top of bitcoin platform. Master coin raised 500k in the first round and about 550 k subsequently in 2014. Mastercoin was later rebranded as OMNI.

One of the earliest popular ICO was for Ethereum.Ethereum tokens were launched in July 2014. The initial price of ethereum was pegged to BTC and was set at 2000 ETH per BTC. Ethereum raised about 20 million from the ICO and was the biggest ICO at its time. Since then many big ICOs have launched with Bancor launching in mid of 2016 and raising about 15o million USD.

Some of the popular cryptocurrencies which launched with an ICO include Stratis, Lisk, Stellar. Neo is one of the biggest and foremost cryptocurrencies to launch from China.

 

Top Blockchain Platforms  enabling ICOs

Ethereum is the most popular platform powering token sales and ICOs. An ERC20 token is the most popular token used for ICO by different projects. ERC20 has become a standard for issuing tokens. In fact, ICOs have surprisingly turned out to be one of the most popular applications of ethereum platform.

Neo is the other popular blockchain platform which is being used for ICO tokens. Most of the ICOs project built by Chinese and East Asian entrepreneurs are being launched on the NEO Platform.

Stratis and QTUM are other platforms which are trying to crack the ICO use case.

D

Differences Between ICO and IPO

CO is an offering of token which can be utility or non utility while IPO refers to

1. ICO is a token offering IPO is an offering of securities within a company.

2. Tokens offered in ICO do no have any legal backing, securities or stocks offered in IPO have a legal backing.

3. ICO or token sale does not give you any ownership or any other right in the company, Stock IPOs give you ownership of the company

4. IPOs are strictly regulated by the stock market regulator in all countries like SEC does in the United States. So if you go and do an IPO there are myriad guidelines and rules you need to follow. In case of ICOs, there are no regulations and not many rules you need to follow. So regulators provide reasonable protection for investors from any fraudulent offering.

Le

Legality Of ICO

pends on what jurisdiction you are talking about. At present participation in most of the ICOs in the US is illegal. Similarly, in China all ICOs are illegal. Most of the countries have taken an ambivalent stance to ICOs. SEC has recently come with guidelines where they have differentiated between utility tokens and other tokens. Utility tokens give holders of these token access to a particular product or protocol. SEC has clarified Utility tokens are not financial security. while other ICOs whose sole purpose is to pump up value speculatively they are under the scanner

To

Top performing ICOs till Date

me of the best performing ICOs till date are

1. Ripple
2. Ethereum
3. Stratis
4. Stellar Lumens
5. Dash
6. Monero

How

How to evaluate an ICO

(Initial Coin Offering) is a risky asset hence you have to be careful in investing in ICO. Evaluating ICO is also a  tricky exercise and no standard models are available to evaluate ICOs. So if you are looking to invest in ICOs here are some key parameters you should look at

1. Team: As ICOs are offered for projects which are in very early stage and in most cases do not have a working product or an traction it is very important that it is backed by a competent team. Do review the quality of the team, what they have done in past, their LinkedIn profiles, github commits etc.
2. Developer and Community: How many developers from the community are contributing to the code. Non-Open source projects might not be the best projects to bet on.
3. Blockchain Requirement: Some of the ICO projects have nothing to do with blockchain and only use blockchain as marketing gimmick check stay away from such ICOs.
4. Valuation: At the end, you also should worry about valuation that a project is looking at. Are the founders trying to raise more money then they require or should be raising?
5. Token Utility: What is the utility of the token in the ecosystem