ICOs for Beginners

What are ICOs

ICO stands for Initial Coin Offering and is one of the popular ways of raising money via crowd funding. The term ICO seems to be derived from traditional finance term IPO - "Initial Public Offering" .IPO in the traditional finanical markets is the event when a company goes public, that is their shares are available to be purchased by the public from exchanges. Primary goals of IPO's are to raise money from the public, ICO's on the other hand sells coins also termed as tokens to raise money for a specific project.

Some of the earlier ICO's happened in 2013 and gained poularity in 2017. General idea of participating in an ICO is you invest in a project during its early stages if you believe in the goal and later on your holiding coins or tokens received via the ICO appreciate in value as the project grows

How do ICOs work

When a cryptocurrency project wants to raise money via ICO, it starts by publishing a whitepaper about the project which is a document which states the goal of the project, projects key milestones, founding teams background, how the raised funds will be spend, how much money is needed for the project and the purpose the recieved tokens.

During the ICO campaign, supporters participate by sending other major cryptocurrencies (ETH/BTC/Stable Coins) in exchange for projects native tokens/coins. Some ICO's set a minimum threshold for the amount to be raised and if it is not met within the specified timeframe, the raised money is returned to the participants and the ICO the ICO offering would be considered unsuccesful.

Tokens recieved by an ICO can be exchanged between people even when it is not listed in a Crypto Exchange.

Types of Tokens

Tokens can be loosely can be loosely categorized into the below types:

• Payment Tokens: As the name suggests, these tokens will be used as an alternative form of payment to fiat currencies.

• Utility Tokens: These are digital assets which give the holder to some form of utility which can be be access to a service or a product

• Governance Token: These are digital assets which represent voting power on a particular project. Governance tokens enables projects to be truly "Decentralized" by distributing governing rights to users of the token

• Security/Asset Tokens: Security or Asset tokens represent access and rights to an underlying physical entity with an entitlement to finanial gains similar to Equities in the traditional sense

Note on ICO participation

Investors looking to participate in ICO's should be very careful and should take time to read the ICO whitepaper, do research about the project founding team, get invovled with the project community and make sure to understand the type of token and how it would be distributed.