In this blog article we are going to look at ICOs, and more importantly one of the most basic things you should have in place before trying to launch one. Although it may seem obvious, if you are to launch an ICO then you must ensure that it is in someway making use of blockchain technology, and you are not merely using as ICO to raise funds for an unrelated project.
So before we go into detail about this, for the uninitiated let’s take a look at what an ICO is. ICO stands for initial coin offering, and is basically a way of crowdfunding which is based around cryptocurrency.
The number of ICOs being launched is soaring, as many entrepreneurs involved in the world of blockchain and cryptocurrency are realising just how valuable a well executed ICO can be. But how exactly does it work?
Once you have your idea which is related to blockchain then you look to launch an ICO, during which time investors will send you cryptocurrency in exchange for tokens which are the new cryptocurrency that you will release once the ICO has finished. To take a look at this i more detail, let’s assume that the ICO in question is an online poker company which will use the blockchain to make it’s game more secure, as well as allow bets in the form of cryptocurrency. In effect you would be exchanging your bitcoin for some of their ‘betcoin’ or ‘pokercoin’, or whatever they decide to name their token.
At the end of the ICO there are a few options for investors and what they can do with their tokens. If we’re to look at the above example then investors could use their tokens within the online poker gaming site which has been launched, otherwise they could wait for the new ‘betcoins’ to appear on one of the many cryptocurrency exchanges available, where they could then be traded like any other form of cryptocurrency.
So the above was a hypothetical situation, we can also look at a real example. A perfect example of how an ICO works comes from Pindify, which is also known as a decentralised foundation. A decentralised foundation is when a company creates a business hybrid using blockchain technology. In the form of Pindify this is an online market platform for providers of music, art & media. By setting up an ICO this means that Pindify can raise capital for this project by asking for cryptocurrency such as Ethereum in exchange for tokens. Once you have these tokens you can either hold them and wait to see what happens with the value, or sell them once they are listed on an exchange.
So there we have the basics of an ICO, so as you can see it’s a good way for blockchain related businesses to raise capital, and also a good opportunity for investors.
There is however a common misconception going around making people believe that they can hold an ICO purely just because their business idea accepts cryptocurrency as payment, which is simply not true.
Take for example a young businessman from London who came up with the idea of holding an ICO for his new golf course. When asked how this was making use of blockchain technology his response was that it did not, however customers could pay for services with cryptocurrency. This is of course not an idea worthy of an ICO, as the business itself is doing nothing on the blockchain, it is merely just accepting crypto as a form of payment.
But at least the above idea was at least accepting crypto, there have been other cases where companies have wanted to launch an ICO but blockchain and crypto is not related in the slightest to their idea, and in some cases it’s doubtful whether the entrepreneurs in question even knew what blockchain was. How about an ICO for a liposuction clinic, or a dentist, or even an online fruit and vegetable shop? All of these have bizarrely thought about launching ICOs, however as mentioned this is simply not going to happen as they’re not related to blockchain.
So to wrap things up, if you’re an investor then be sure to to do your due diligence and be sure to understand the core value of the company and be sure that it is a core blockchain solution and adding value to that ecosystem, and merely not just an entrepreneur looking to make a quick buck through cryptocurrency.