ICO cryptocurrency:ICO stands for “Initial Coin Offering”. What it actually is, it’s a fundraising mechanism in which someone offers investors some units of a new cryptocurrency or crypto-token in exchange for cryptocurrencies like Bitcoin or Etherum. Since 2013 ICOs are often used to fund the development of new cryptocurrencies. They are a relatively new phenomenon but have quickly become a dominant topic of discussion within the blockchain community.
ICOs is also used by the startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks. Many ICOs work by having investors sending funds usually bitcoin or ether to a smart contract that store funds and distributes an equivalent value in the new token at a later point in time. What makes the investment speculative and risky is that ICOs have a fundamental issue where most of them raise money pre-product.
To some, it may seem as if ICOs appeared out of nowhere, but there is always a story behind everything and so do ICOs had.
HISTORY OF ICO cryptocurrency:
In 2013, several projects used a crowd sale model to try and fund their development work. And on the same year, a developer J.R. Willet penned “The Second Bitcoin White Paper”, presenting his new project Mastercoin. In this document, Willet suggested using Bitcoin blockchain as a base protocol layer, on top of which new protocols with new rules could be constructed. He further stated that new protocol layers on top of the Bitcoin blockchain will also increase Bitcoin value since they will expand its utilization. Furthermore, he suggested a new way of crypto community fundraising, which would later become known as the first Initial Coin Offering.
In Willet’s early ICO model, the governance of the project as well as aligning the incentives of coin holders and developers played a crucial role. He proposed to create a so-called “Trusted Entity”, an organization with a publicly known identity and location that would issue Mastercoins, coordinate the raising funds and distribute the funds for the protocol software development. The first ICO turned out to be a success when it raised around $500,000 worth of bitcoin in August 2013.
Ripple pre-mined 1 billion XRP tokens and sold them to willing investors in exchange for flat currencies or bitcoin. Etherum raised a little over $18 million in early 2014-the largest ICO ever completed at that time. However, there were several technical drawbacks that made the original Bitcoin blockchain protocol too simple to accommodate more complex applications. One of the major limitations was the lack of turning completeness of Bitcoin scripting language.
The reason Etherum made possible what Bitcoin couldn’t as Etherum contains several new features superior to Bitcoin blockchain. Most notable, its scripting language is Turning-complete hence “allowing anyone to write smart contracts and decentralized applications where they can create their own arbitrary rules for ownership, transaction formats and state transaction functions.” Secondly, Etherum’s scripting language, as opposed to the Bitcoin, is not value-blind. Thirdly, as a simple ledger, the coins (outputs) in the Bitcoin ecosystem can be either spent or unspent, either they will exist as a received output in your wallet or they exist as a received output in your wallet or they are recorded as sent to another user.
The Decentralized autonomous organization (so-called DAOs) was the first attempt at fundraising for a new token on Ethereum. It promised to create a decentralized organization that would fund other blockchain projects, but it was unique in that governance decision would be made by the token holders themselves. The Etherum foundation decided the best course of action was to move forward with a hard fork, allowing them to claw back the stolen funds.
Now we’ll talk about different stages in ICO.
THE DIFFERENT ICO STAGES:
- Seed funding round:
In this stage the project is usually in its very early steps in refining the idea, gathering the team and preparing the white paper, website and strategic approaches. The seed phase is usually not very public and the team aims to raise the initial funding from their own networks.
This a very good opportunity to get the maximum bonuses from very early stage projects that have a lot of potentials. But there is a slight risk in this as many of the seed round companies never make it all the way to ICO stage.
- Private Sales:
In this stage, the project usually has its basic materials such as the white paper, landing page and social communities established but there is yet very little visibility for the project. A private sale can still provide good bonuses for early contributors but this stage still carries the big risk of the ICO marketing campaign not succeeding.
- Pre ICO cryptocurrency or pre-sales:
In pre-ICO and pre-sales stage the project usually has secured sufficient funding for a full-size ICO marketing campaign rollout. It gives the last chance for active industry experts and well-networked people to invest into the project with a discounted token price. The most endorsed projects usually get sold out at this stage already.
Upcoming ICO cryptocurrency and whitelist:
In this, if the project is not sold out during the pre-ICO phase, there might be a time window from a couple of days to a couple of weeks when the project is usually allocating a lot of resources to roll out marketing campaigns and to show that their ICO phase is starting soon.
The whitelist is usually done to collect a newsletter list about the interested contributors to provide the community with relevant updates about the progress of the crowdsale. These are limited in size as well.
Active (ongoing ICO cryptocurrency):
The actual ICO is the main crowd sale of the project tokens. Usually, most of the tokens are left to be sold on this stage, since the marketing momentum has reached its climax and most of the potential investors have received information about the ongoing crowdsale. The main sale of the ICO usually does not provide any discounts any more for the tokens, since the campaign is already in a more advanced stage and seems like a lower risk for the contributors.
- After markets:
After the ICO and the token generation event are finished each contributor should receive their share of the total token pool. The token is transferred or programmed by the project technical team to be allocated according to the contribution, KYC acceptance and wallet addresses collected during the previous stages.
A project surviving through all of these steps as a winner is very rare success story which makes identifying the right projects in the early stage challenging and rewarding for the early investors.
This Article has been written by Monika Katare.