What is an ICO and what is an IEO?
ICO stands for ‘initial coin offering,’ which means as the first coin release. IEO stands for “initial exchange offering.
An ICO is basically the crypto version of crowdfunding. As an investor, you buy tokens from a blockchain startup. If the startup becomes successful, your coins can become worth more. An IEO is pretty much the same, only the crowdfund is organized through an exchange.
Why an ICO?
Imagine this: you have an idea for a blockchain application. By creating coins in advance and selling them, you can quickly fund your business plan.
At a later stage, the coins you have sold can then be used on your blockchain platform. For example, to pay fees.
The more people use your platform, the higher the number of transactions on the associated blockchain. To pay all transaction fees, the demand for the ICO coin also increases. For investors, this is beneficial because the price of the coin is likely to rise.
Unfortunately, in many cases the above is not the case. A startup has an idea, captures this idea on a white paper (a document that explains the ICO issuance, its value proposition and how it works) and starts an ICO. The tokens that investors receive because of their investment often have the sole added value of providing the company with liquidity. In business operations and for the product, the token has no use. There is no underlying demand from the ecosystem for that token.
Although there is sometimes fraud in ICOs, you can get pretty good returns on an investment in an ICO. On the other hand, there is also a huge number of ICOs that go bust within a year. In which case your money is lost. So, it is not always the case that you can make a lot of money by participating in an ICO.
In addition, it is important to note that there is hardly any kind of consumer protection in ICOs. This is the reason why many governments, are not so happy with the existence of ICOs.
How does an ICO work?
Most ICOs have only a plan and a coin at the beginning. A plan for a blockchain project is usually laid down in a white paper. You create such a coin quite easily on a platform like Ethereum. People who like your plan then buy your coin with ether (the official coin in the Ethereum net).
You end up using the ethers to build the product (the blockchain application). That starts with a test version. Also called a “testnet”. Sometimes there will be several versions of the test.
If all goes well and the platform works the way you want, you launch the so-called mainnet. This is the final version of your blockchain platform. This does not mean that your platform will never change or be modified.
If a project really gets to the point where they can launch their own blockchain, it also means that the tokens need to be converted. These must move from the Ethereum’s blockchain to the company’s one. At this stage, you’ll probably also hear the term ERC-20 token. This is the name of the standard that tokens on Ethereum’s blockchain must comply with.
How do you participate in an ICO?
First, you start with preliminary research. In any case, make sure you have a very solid basic knowledge about blockchain, bitcoin, cryptocurrencies and ICOs yourself. Basically, as a novice crypto investor, you should not want to invest in an ICO without doing your due diligence. The chances of making an expensive mistake are simply strong.
Platforms like ICO Drops and ICO Ratings keep track of which ICOs are going live in the coming period. They also give the ICOs a score but remember that those platforms are commercial parties. Chances are they are paid to price an ICO. So don’t blindly rely on this.
Above all, do your own research and base your choices on your own judgment.
Do you want to buy tokens from an ICO? Then do so from an ether address that you have generated yourself with a wallet. Self-managing means that only you have the private keys. Then you can always choose whether you want to send these coins to an exchange.
Do you want to participate in an IEO? Then you need to become a member of the exchange where the token sale is held. The exchange provides the platform on which a project can sell its coins or tokens. In exchange, the exchange gets exclusivity on trading that token or coin in the first place. Another additional advantage for that exchange is that they determine which cryptocurrency you must use to participate in an IEO. Often that is the crypto they have released themselves.
What are the dangers?
There are always financial risks associated with any investment, but investing in ICOs can be extremely risky. First of all, according to the AFM, ICOs are a breeding ground for fraud and scams. Research has been published showing that over 80% of ICOs are fraudulent.
But of course, there are also honest ICOs who want to build an incredibly cool blockchain platform. However, that doesn’t mean the risk is over. According to bitcoin.com, almost half of all ICOs from 2017 have already thrown in the towel. So investing in them would also be a waste of money.
Finding a good and honest ICO really requires trained eyes and a lot of knowledge about blockchain and cryptos. In addition, above all, you have to be willing to lose your deposit.
A lot can go wrong with an ICO. Still, that does not mean that there have not been successful ICOs. Most crypto exchanges started out as ICOs. And some of them have actually achieved remarkably high returns.
Below is a list of three ongoing or successful ICOs:
The second largest cryptocurrency ether, itself started as an ICO. The term ICO did not exist back then, so it was simply called a crowdsale. An ether that can cost thousands of dollars today was only worth 31 cents during the crowdsale.
The ironic thing is that ether owes that price increase in part to all the ICOs issued on Ethereum’s platform. Ethereum allows you to build tokens on their blockchain. A token is similar to a cryptocurrency but does not have its own blockchain.
NEO – Antshares
During the ICO phase, this crypto startup was still called Antshares. Intended as a serious Ethereum rival. NEO, like Ethereum, has a blockchain on which you can build decentralized apps. The important difference is that you do not have to learn a special programming language to build a NEO app. For Ethereum, you do.
During the ICO in 2015, one Antshare cost you about 3.2 cents. With an investment of a few thousand euros, you could have been a millionaire by now.
This ICO takes the crown. It is not only one of the first ICOs but also one of the most successful ever. NXT, a blockchain platform for the financial sector, raised 16 million dollars at the time.
But think about this: Had you participated for a thousand euro in 2013? At the all-time high this coin was at €2.15. Your thousand euro’s would have been worth €130 million at that time. Think about that!
An ICO is a method by which startups can fund blockchain projects. If the platform becomes popular, the return on your investment can be substantial. Nevertheless, we advise everyone to take their own due diligence.
If you already have a little more experience and you dare to invest in an ICO, it can pay off in a big way. A small look at successful ICOs shows us outrageous returns. However, not every ICO is successful. In fact, according to research the majority fail within a year.
So, when you invest in an ICO it’s important that you do your own due diligence. At Brickken we are launching our ICO in 2022. We will have out white paper ready in July 2021. Join our Telegram community where the founders are happy to explain and answer any questions you may have on a daily basis.
And if you have any specific questions just shoot us an email at firstname.lastname@example.org. We are more than happy to help and love talking about our future ICO!