What is ICO?
The term ICO stands for Initial Coin Offering and is a form of funding which relies on cryptocurrencies as the main source of financing. In this process, a certain amount of cryptocurrency is traded as tokens to potential investors, who buy them in exchange for real currency or even other forms of cryptocurrency.
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Typically, ICO is used as a method for raising capital by startup firms which need a quick cash flow, without having to go to established financiers like banks, venture capitalists or stock traders who often have a lot of bureaucracies that must be met first before funds are released to the recipient. Unlike traditional forms of raising capital, ICO isn’t affected by most financial regulations and is therefore much easier to achieve.
According to statistics, it’s estimated that around 7 billion dollars was raised through ICO between January 2018 and June 2018, which just shows how popular the trend is catching up among those seeking investment for their businesses.
What is ICO trading and how does it work?
The ICO trading process is also known as token sale, it’s usually conducted by ICO managers on behalf of the company, whereby they offer individual investors a token to be exchanged with fiat currency having a certain market value. Alternatively, the token or cryptocurrency may be swapped for other digital assets that the trader may be interested in, such as Ether (ETH) or Bitcoin (BTC).
Generally, if the token that has been traded appreciates in value within a given period of time, then the investor who bought or sold it will make a profit from the transaction which is immediately reflected on their account.
Additionally, all tokens exchanged through ICOs don’t have any ownership stakes’ labeled against them, this allows startups to plan in advance for how they’ll use the resources received from the ICO process even before it’s conducted. Likewise, in most cases before trading is done the company usually comes up with a hitepaper’, which provides details on how the ICO-funded product will be beneficial to the community.
Trading ICO Vs Trading Existing Cryptocurrencies
ICO provides an easy and straightforward way of getting business funding, since it removes third-party mediators from the entire process. All you need to have is a whitepaper explaining your business strategy to potential investors, who shall then put in their money to the company in exchange for tokens. Furthermore, since ICO tokens can be exchanged with real cash they are less prone to price volatility and depreciations, which makes it possible for startups to estimate the total amount of finances they can received from the trading process with accuracy.
On the other hand, most existing cryptocurrencies aren’t centralized but instead rely on market forces of demand and supply to determine their value, this way they may quickly depreciate in worth within a short period of time and become meaningless to the company seeking to raise capital through them. For instance, just recently Bitcoin (BTC) lost over 10% of its value in one day, triggering a sudden crash across the entire cryptocurrency market, whereby other crypto-coins such as Etherurm also experienced heavier losses of between 10-20% of their values which were wiped out from the ripple effect.
Therefore, if you’re looking for a stable source of capital that will give you peace of mind, ICO is the way to go. With this investment, you won’t have to suffer from unexpected depreciations in value that may jeopardize your entire business plans.
Even more, some large cryptocurrencies have a finite supply of virtual coins, which may not be enough if you’re looking to raise huge amounts of capital for your business. For instance, Bitcoin only has 21 million crypto units circulating among its roughly 32 million wallets. Therefore, if you’re seeking to raise significant funds for your business such cryptocurrencies may not be effective, since you won’t be able to reach your target due to the limited supply of digital coins available.
Contrarily, since Initial Coin Offering (ICO) relies on both tokens and paper currency as the main tools for transaction, the funding supply is unlimited and you can raise as much resources as you want without any restrictions. It’s also less prone to cybercrime that’s been known to affect some cryptocurrencies, such as illegal mining.
Basic Trading Guidelines and homework you need to do before you start trading ICO
While ICO is a quick and rather safe way of getting funding for your business, there are certain guidelines you must follow before beginning to trade. Below are some of the steps you should consider:-
- I) Sign up for the ICO using your official project site
For your ICO investment request to be considered legitimate, you should have a website detailing what the startup is all about, including its goals, total financing required, and duration of the funding campaign among other factors.
- II) Look for the initial cryptocurrency investment
Most ICOs require traders to have a certain minimum amount in their wallets before commencing with any transactions, usually this ranges between $10 to $100 worth of crypto-coins. You also have to transfer these digital coins to a private software wallet, with a unique password only known to the owner.
III) Purchase ICO tokens
After meeting the above criteria, the next step is moving your tokens to the ICO service provider’s address. However, before submitting these funds it’s recommended to do a background check on the agency to determine if they are genuine or not. Likewise, countercheck the receiver’s wallet address to ensure you don’t end up sending funds to the wrong account, where it can’t be recovered back. Nowadays, there are many fake ICO websites with names that appear similar to the real ones, and it’s only through careful scrutiny that you’ll be able to differentiate between the two.
- IV) Choose a reputable wallet service to store your new ICO tokens
To ensure your funds remain safe and secure, it’s recommended to register for a wallet service, such as MyEtherWallet, where all transactions will be made once actual trading begins. While nowadays most major ICOs provide wallets to their users for free, if you aren’t contented you can still choose your own different wallet without any repercussions.
Once your tokens get listed on the trading options, you’ll be able to trade them for other forms of cryptocurrencies or even real money. Nevertheless, for the first few hours after being allowed to trade, you may only be permitted to exchange Bitcoin and Ether before other forms of transaction units are introduced later on.