These days the technology applied in different aspects of our life. In fact, everything around us is going to become digital. It was around 2008 that the world was ready for a digital currency to born. As a result, Bitcoin introduced to the public. So, it would be no wonder if digital stocks also appear and be accessible for public. In this article we are going to introduce you what is ICO?
ICO in simple words
ICO is the abbreviation for “Initial Coin Offering”. The main idea is very close to the IPO (Initial Public Offering). But, it has two major differences. The first is that you would not own a share in the future company. Secondly, it’s must be blockchain-based.
However, IPO may look safer, ICO has some positive aspects and features, which we are going to talk about in this section.
In an ICO it’s not required sharing the company with investors. The developers only sell the future service. In this case, the developers get the money from investors, but still have the full control over their business.
By using the ICO, all the people worldwide can participate in a project and invest in.
No time will waste in order to pass the regulations. The project can run immediately and be the first in the market.
How does ICO work?
Anyone with an innovative idea can run a project in ICO. They invite other people to invest in their project. When the project is done, they will get some benefits. The benefit could be a product or service or anything else. As easy as that.
What is an ICO token?
The ICO represent your participation to a startup project. By buying ICO token you contribute to a project and invest in it. you may win or even you may lose. The more money you invest in a project, the more token you will get in return. You can sell your token later if you want to make a profit. In fact, some people buy the ICO tokens with hope that the price will increase in the future.
But there is a question here. Why should you invest in a project when you never get a part of the company same as investing in IPO? Here is, where smart contracts join the game.
What is an ICO Smart Contract?
The business owners and developers have to promise something worthy to the investors. It could be a product, service or even a part of the profit of the company in the future. So, here the smart contracts play an important role.
In fact, the smart contract is an agreement between the company, which issued the ICO and the investors. In technical words, smart contract is a series of codes, which make a certain “then” happen if a specific “if” happened. For example, it can say that anybody bought the tokens in 2020, would be able to sell in the future at the fixed price.
How to create a smart contract?
Most of the smart contracts created on the Ethereum platform. But, there are other platforms such as Confideal, ChainLink, BlockCAT, etc. Each platform has its own advantages and disadvantages.
Why do we have to invest in ICO tokens?
- According to smart contract, early investors would get some benefits in the future.
- The price of the token may fluctuate. It means it will increase and decrease over the time. As a result, you can buy and sell token in order to make a profit.
How not to fall for a scam ICO?
ICO is full of different projects. As we mentioned above by investing in ICO projects you may lose or win. So, there are some good projects as well as tons of bad projects. Not all the bad projects are a scam, because they may be right at first but the project became unsuccessful. Anyway there are plenty of scams among ICO projects as well.
There are projects who start with innovative and good ideas, but when they raised the money and attracted enough investors, suddenly disappear.
Here we are going to introduce you some criteria, which you have to be aware of. If, a project has one of the below mentioned criteria do not waste your money in it.
The team is anonymous
The founders of the project should be well-known people in their field. Do not invest in projects, which has unknown developers. If you do, it’s like you give your money to a random stranger.
Too good offer
If the developers and ICO issuers is offering high revenue percentage it could consider as scam. Usually the revenue percentage should not be above the average.
Not clear vision
A good start-up should have a clear and detailed road-map. If you cannot find enough information about the project on their website, it’s a sign for thinking twice.