What is an ICO and How Does It Work
Cryptocurrency is the one word that has been on the lips of everyone in the finance world. It has wildly dominated this sector for the past year, and it’s expected to continue growing. If you think that you are late because you haven’t already bought digital currencies like Ethereum and Bitcoin, you may want to look into Initial Coin Offering (ICOs) . You should be warned, however, that ICOs are very risky even when the circumstances look very bright. Scams are the highest risk associated with ICOs.
So, What Exactly is an ICO? ICO Explained
Close your eyes and imagine working in Silicon Valley. You have a great startup idea for a brand new cryptocurrency system. Perhaps you want to digitalize and encrypt the babysitter/parent payment system. This will definitely shape up that system because it’s an amazing idea. Let’s give it the name BabyCoin. The only challenge is that you don’t have the funds to kick start your awesome idea and actually come up with the cryptocurrency. You can explore several options such as venture capitalists or even banks and get them to invest into your idea, but what if you could actually raise the money you need and get to keep all of your company to yourself? Enter ICO.
Here’s how to go about it. You will need to create a whitepaper first. This is a document that explains in detail how the system works. Next, create a website – make sure that it looks good – and use it to get the word out there. Explain to everyone why they should invest in your idea. After that, ask people to send you money which could be a digital currency like Ethereum and Bitcoin or fiat. In return, send some BabyCoin back to them. Your investors will rely on the hope that the coin will circulate widely and get used a lot which will increase its value.
It’s very important to keep in mind the difference between the Initial Coin Offering (ICO) and Initial Public Offering (ICO). Investing in an IPO guarantees you some ownership of the company you’re investing in. However, this is not the case with Initial Coin Offerings. Investing in an ICO is a total gamble on the idea that the currency whose worth currently stands at nothing will increase in value in the future and will make you money.
Who Can Launch an ICO and How to Start an ICO?
Yes, anyone can launch an ICO! Currently, in America, there are very few regulations on ICOs. This means that if you can get your hands on the technology needed to launch your digital currency, you are free to get into the digital currency market. At this moment, cryptocurrency is spreading like wildfire in the west. The gold on the hill is too much, and the regulations are almost non-existent. Though this situation can work in your favor, it may also lead to your downfall. An ICO is the easiest way to scam people off their money through funding. Because there are almost no laws regulating ICOs, you can easily set up a system just to convince someone that you have the next revolutionary idea and end up walking away with their money.
What this means is that if you plan to invest in the newest ICO that your workmate, Mike, has told you about, you need to do some homework. The obvious thing to do first is to make sure the people behind the ICO are real and that they are also accountable. In the digital era, it’s less than easy to get a photo regarding stocks from the internet and use it to create a beautiful website. As such, make sure to research deeper than most people would. Some of the factors that you should consider include the history that the people who have invested in the product have with blockchain and cryptocurrency. If they don’t have any experience, then this is most probably a bad sign.
How to Launch an ICO?
Before anything else, make sure you have a deep knowledge and understanding of blockchain and cryptocurrency. It may not be you necessarily, it may be the person who you’re working with also. Just because everyone can launch an ICO doesn’t mean that every Tom, Dick, and Harry should. Besides, when owning a digital currency, you need to have the ability to answer and explain any questions about your ICO. If you can do all this on the spot, then you are ready to go.
Another important thing is to search whether your business stands to benefit from your ICO actively. Basically, right after going through this article, you should reach out to someone with experience on Bitcoin and blockchain and get them to tell you whether your idea is a slam dunk or not. It’s highly advisable to go through the safer routes of funding if it’s not a slam dunk.
If you really want to move forward with the idea, then you will need a document which will show what your currency will bring to the world that hasn’t already been brought by any other person. However, if your idea already exists, you will need to have a detailed explanation on how you intend to execute it better than everyone else. The document that contains all this information is called a whitepaper. The whitepaper shouldn’t only be engaging but also as detailed as possible and should contain details about all the aspects of your ICO. Ethereum is one of the most developed and successful ICOs so you should take a look at its whitepaper.
Just like any successful business, your whitepaper should hook your reader or buyer by the time they are done reading the first page. Ethereum achieves this by taking the time to give a detailed account of what blockchain is. They then go further to explain how they intend to revolutionize the works of Satoshi Nakamoto to create the next big thing. All this is done on the first page. Though it may be tempting to follow Ethereum’s whitepaper structure, not all whitepapers should contain everything about blockchain. However, your whitepaper should be as simple to understand as possible even for the guy who has no knowledge of how Blockchain and cryptocurrency work.
After creating your whitepaper, the next step is to advertise. You basically have two target audiences; those with absolutely no idea of what ICOs and cryptocurrencies are and those with prior knowledge and experience. Identifying with the people whose excitement is pumped up by your idea is very important since they will be more likely and more eager to open up their checkbook if this means a good deal for them. In our earlier example (BabyCoin), your target audience will include the popular mommy vloggers and bloggers alike. Get to know if they would be willing to publish some content on their sites about BabyCoin and why it will be the biggest and best innovation in babysitting since the days of The Babysitter’s Club. Before signing any papers, make sure that they give you the details of the advertisement deal. A warning was recently released by the SEC saying that all celebrities who want to endorse ICOs via social media should enclose the compensation that they receive. Failing to disclose the compensation will be considered illegal.
You will also need to be available to answer any questions that may arise, most probably on social media sites like Twitter and Reddit. You may delegate this task to your leads and programmers. Submitting your ICO to recognized listings which run databases of what they think are quality ICOs should also be under consideration. If you want to pump some excitement into people who are involved in the cryptocurrency community, this is the way to do it. This way, your ICO will hopefully become known on the internet.
After all this, the word is now out that Babycoin is here and it’s got the people all psyched up. The only remaining bit is determining the distribution and token pricing. Just to prove to the doubters that you know what you’re doing, you will need to have a prototype on standby. Get your exchange platform and your website set up. Once this is done, good luck!
Is Cryptocurrency a Security?
The question of whether a coin can be considered security or not is the biggest legal issue regarding ICOs. It’s among the most highly debated issues in the crypto world. However, a simple answer has continuously remained elusive.
In some cases, an ICO might constitute a security offering. In this case, the federal laws say that the ICO must be registered by the seller and if not, there should be an exception. The SEC may step in and sanction the seller or enforce the sale if the seller fails to find the exception. A good number of investors are well vast with the security issues surrounding ICOs and their consequences.
It’s not common knowledge, however, that one can actually sue a seller if he finds out that he bought a security that wasn’t registered. He can actually get a refund of his money. This is according to the Securities and Exchange Act of 1993.
This means that the power to determine whether or not a sale is actually a securities sale is placed in the hands of the individual investor. This also means that a company that’s found guilty of an unregistered security sale may have to give a full refund to the investors because the effects of such an act would be wide-ranging.
Individual Lawsuits Are Possible
The Initial Coin Offering (ICO) is the darkest aspect of the Blockchain and Cryptocurrency community in the United States. ICOs offer companies a way through which they can crowdsource funds which they can later use to launch a new token, cryptocurrency or any other related startup.
Since they made their debut, ICOs has faced numerous legal battles; investors have disagreed with companies that fail to meet their promises. Other issues include hacking and fraud. Other than viewing ICOs the same way that regulators such as the SEC and prosecutors do, more legal implications that should be considered are present.
CoinDesk released a reports saying that buyers, under the laws of federal securities, can actually sue sellers. These laws are also used to govern other similar transactions.
Companies, as well as buyers, who intend to make transactions in the ICO process or other types of similar transactions, should understand these risks.
In a continuously evolving world of Initial Token and Coin Offerings, buyers don’t have to worry if they are treated in a biased or unfair way because there are measures in place to deal with these issues.
What’s Happening with All These Celebrity ICO?
If you have come across some of the famous entertainers and actors like Ghostface Killah and Jamie Fox encouraging their fans to invest in a brand new ICO, you may want to go deeper.
Dj Khaled, along with boxing legend Floyd Mayweather Jr, promoted Centra. This Celebrity ICO was reported to have raised $30 million by the end of last year. Numerous reports have, however, surfaced saying that the ICO is currently entangled in a lawsuit (a class action lawsuit actually). There were allegations of the company selling unregistered securities. Some of the celebrities’ media posts have also been deleted.
How to Determine the Best ICO to Invest In?
Since ICOs are almost unregulated, you have to double check everything. Read the whitepaper carefully and make sure that the team involved has a history with cryptocurrency.
Coinschedule.com only focuses on the ICOs that they consider being real and viable. Pay them a visit also.
Initial coin offering list:
Are ICOs Going to be Regulated?
In December 2017, the SEC classified ICOs as securities. Jay Clayton explained that since the business is based on profits accruing from managerial efforts, they had to be classified this way. This generally means that the SEC will soon be knocking on the doors of ICOs they think could be duping investors.
The first case was documented on December 11, 2017. Munchee, a California-based company was shut down while they were in the process of launching an ICO which would be used to order food from their online app.
It remains to be seen whether the SEC is taking the driver’s seat.
So what is an ICO? ICOs are the newest way to raise money. Everyone is trying to get into it without being scammed. All you need to do is thorough homework before diving in. It’s all about high risk and high reward.