ICO is an English term and stands for ‘Initial Coin Offering’. The Turkish equivalent is called ‘Initial Digital Money Offering’. It is also known as the initial coin offering. We can also see ICOs as IPOs, that is, initial public offerings. The main purpose of the newly created digital currency is to provide funding.
A Brief History of Initial Coin Offering (ICO)
The first cryptocurrency distributed by an ICO is Ripple. In early 2013, Ripple Labs began developing its payment system, Ripple, and created nearly 100 billion XRP tokens. The company sold this token to fund the development of the Ripple platform. Then in 2013, Mastercoin promised to build a layer on top of Bitcoin to make smart contracts and code Bitcoin transactions. He made a profit of about $1 million by selling several million Mastercoin tokens. Apart from that, some crypto coins were funded by ICO. Like Lisk, who sold $5 million in 2016 in 2016. But the most prominent among them is Ethereum. In mid-2014, the Ethereum Foundation sold ETH, each amounting to 0.0005 Bitcoin. However, they have become one of the largest crowdfunding ever, raising nearly $20 million by serving as the base base for Ethereum’s development.
How Does an Initial Coin Offering (ICO) Work?
ICOs are for the first phase of the respective tokens and are a mechanism for raising money for projects and raising funds for themselves. The investor who buys the tokens invests in the project that will go out to the company with the investment he has made, unlike the IPO (public offering). The ICO working principle is first described in detail the whitepaper of the created token, that is, the advantages it offers, the goal it is trying to achieve, how it works and what it does. The product is introduced through social media and the created system is understood. Usually, ICO tokens are created on the Ethereum blockchain following the ERC-20 token standard, which is why they are also known as ERC-20 tokens. In addition to Ethereum, there are other platforms that support the creation and issuance of digital tokens (e.g., Stellar, NEM, NEO, and Waves). Investors who want to create a smart contract on Ethereum and invest through this contract are given tokens created in exchange for Ether. Thanks to this, you start collecting Ether in exchange for the token you create and fund your project.
Advantages and Disadvantages of Initial Coin Offering (ICO)
The biggest advantage of ICOs is that they have the potential for very high returns. Thanks to ICOs, it has made many investors huge profits. Looking at the 2017 figures: there were 435 successful ICOs, each of which raised an average of $ 12.7 million. The total amount raised for 2017 was $5.6 billion. Also, tokens purchased in ICOs gave an average of 12.8 times in dollar terms on the initial investment. The downside is unforeseen risks and opportunities. The biggest disadvantage is that it provides the opportunity to defraud investors with little information. Because it is not regulated by financial authorities such as the SEC, funds lost due to fraud can never be recovered. There is no guarantee that an investor will not be a loser or scammed when investing in ICOs. To help prevent ICO scams, investors can: Having the project developers clearly know what their goals are, know the developer, and make sure that the ICO funds are stored in the escrow wallet can reduce the risk of being scammed. In line with this information, it can shape its investment.
