by Vishal Gupta, CEO SearchTrade
Initial Coin Offering (ICO) is the literal equivalent of Initial Public Offering, except the offering, here is not equity; it is cryptocurrency. ICO is an unregulated means of crowd funding via cryptocurrency. The term is often confused with “token sale”, which is a means of obtaining access to a particular project through investment whereas an ICO offers the sale of a right of ownership or royalties of a project.
There are two purposes of using initial coin offerings
- Crypto coins – A unique cryptocurrency similar to Bitcoin
Lisk ICO was a new cryptocurrency launched in May 2016 and with an initial coin offering, managed to raise 15,000 Bitcoin. Their core specialty is their scalability where they will be using side-chains as a solution. The success or failure of Lisk depends upon its adoption in the market
- Crypto Equity – Create a new project via crowdfunding, so everybody can take part in it. The bought equity can later be traded on specific crypto exchanges.
FirstBlood.io, an eSports reward platform, launched at the end of 2016 was started as a crypto equity project. The business plan was to get players to play and/or judge competitive games on the platform and win rewards, in the form of coins.
How does it work?
The developers of the crypto coin/equity create an Ethereum smart contract. People register on the platform and get special Ethereum wallet addresses. Upon sending ETH to this address, registered users who have subscribed to an ICO will get crypto tokens, the equivalent of crypto equity.
What is Ethereum
Simply put, Ethereum is an open software platform based on blockchain technology that enables developers to build and deploy decentralized applications. Ethereum is a distributed public blockchain network, just like Bitcoin. However, similarities end there. Ethereum focuses on running the programming code of the blockchain whilst Bitcoin focuses on ownership of digital currencies.
What is a Smart Contract
A smart contract is a piece of computer code that can facilitate the exchange of money, content, property, or anything of value. On the blockchain, smart contracts run automatically, executing when specific conditions are met, without the risk of fraud, censorship, downtime or third party interference.
Each initial coin offering has its special price offering, divided into multiple stages. After each stage, the price per crypto token increases. After acquiring crypto tokens, you need to trade them.
Here’s how an ICO transaction flows
- Investors invest in the ICO
- ICO tokens get distributed
- If the ICO target is funded, the project is successful and leftover coins are destroyed
- If the ICO target is not met, the coins are safely returned to the original wallets
ICO tokens aka crypto tokens can be traded on any crypto exchange that accepts it. However, there are also ICO specialized exchanges such as Yunbi and Bittrex.
Good and not so good ICOs
Ethereum was funded by an online public crowd sale in mid-2014. People bought the crypto token Ether for Bitcoin and Ethereum raised $18.4 million in their ICO. On the other hand, there was a shitcoin or scamcoin ICO as well. As the name says, GameBet Coin (GBT) promised to launch a platform enabling sports and eSports betting along with a marketplace. However, they never delivered on this promise.
In September, seven financial regulators from the People’s Republic of China officially outlawed all ICOs, demanding the proceeds from previous ICOs be refunded else face “severe punishment in accordance with the law”, resulting in large sell-offs for most cryptocurrencies.
In summary, ICO is a high risk, high rewards game. You may double your investment or derive nothing out of it.
Vishal Gupta is the co-founder and CEO of Searchtrade.com, a disruptive search platform which allows its users to ‘own’ keywords and earn in Bitcoins while they search on the internet. Vishal aims to bring about a paradigm shift in the way people search on the internet. He sees great potential in Bitcoins or Crypto Currencies as an alternative transaction system and believes in the opportunities that it can bring to the internet economy. He also holds a patent in Computer Implemented Methods and System for Trading Keyword(s) in a Search Network.