Cryptocurrency has sure made its mark in the world today. Since its invention, millions of people have embraced its use and enjoyed the numerous benefits involved. Among the biggest trends in the use of cryptocurrency is the initial coin offering (ICO) which helps companies maximize their wealth. However, the fact that not so many people or banks understand how an Initial Coin offering works has posed a major setback in its popularization.
What is an Initial Coin Offering?
In much simpler terms; Consider a company or business who seeks to improve their financial situation by expanding their network. If the company does not have enough money to accomplish this the most common way forward would be to invite interested persons (investors) to provide the funding in exchange of a number of shares. Initial Coin Offering acts in an almost similar manner. A company seeking to come up with a new coin, app or service creates an ICO. It then dangles it in the market, presenting all its possible benefits. Any interested parties are free to make an offer using valid currency or tokens. In return they get to own a new cryptocurrency token from the new ICO, Whereas the company uses funds acquired to meet its needs and targets – It’s a win-win situation.
However, it doesn’t always end up a success. Another outcome would be, the funds offered by the investors not meeting the set targets. In this case, the company would either opt to further publicize the ICO hoping to attract more investors or totally do away with the idea.
Many companies now choose to build their wealth on ICO’s rather than turning to venture capitalists or stock markets for help.
The origin of Initial Coin Offerings could be said to be around 2013. Back then, the bitcoin had already been introduced into the market and gained significant influence by hitting up to $1000. Everything seemed to be looking up for its developers until the introduction of the Ethereum – a cryptocurrency with built-in contract language known as solidity.
Ethereum gathered overwhelming support from 500-fortune companies among other renowned investors and for a while, it was feared the new entry would overtake bitcoin. Why? Ethereum came up with easier and standardized procedures to acquire their main token- ERC20. It solved most problems common with Bitcoin in mining. Additionally, Ethereum was more preferred because:
– It allows thousands of different applications to run on it.
– It is a great medium of exchange.
– It has shorter block times.
– A clearer vision was provided from its creator who the crypto community were familiar with.
Moreover, Smart Contracts were also able to efficiently run in Ethereum which was a great bonus to ICO developers.
What are Smart Contracts?
They are applications used to enable transactions within the blockchain. They can be relied upon to mint, distribute and resale new tokens among other functions. They eliminate the use of middlemen in business transactions as they can be stored and accessed at any time by all parties involved. This is quite advantageous as any changes to it can be detected by all the parties involved- they are very transparent. The introduction of smart contracts in blockchain made the hiring of lawyers or middlemen a thing of the past. They provide secure and easy access during transactions without the need to pay a lawyer.
Following the above benefits, companies got the much needed motivation to create Initial Coin Offerings. Quite an impressive number were created in 2004, and are still being created to date.
Nevertheless, it would be worthy to note that the first cryptocurrency in ICO was Ripple. It was developed by a company known as Ripples lab which launched it with an aim of developing the Ripple Platform. The venture was so successful as the company managed to sell 100 billion XXP tokens which were used in meeting its target. This occurred in early 2013. Mastercoin followed suit and its developers sold its tokens for one million dollars. Another honorable mention would be Lisk developed in 2016 that had its tokens sold for five million dollars. Since their development, Initial Coin Offerings have raised involved companies a total of about $2.3 billion.
Are ICO’S Legal?
In most countries, ICO is considered a legal and noble venture. Such include the United States of America (U.S.A), United Arab Emirates (U.A.E), Europe, Africa among others. However countries such as china and Korea have deemed ICO’s an illegal venture, citing the number of risks involved.
Generally, a majority of countries are open to the idea of Initial Coin Offerings and recognize them as financial instruments. They only advise their nationals to be cautious when dealing with ICO’s so as to avoid getting scammed. Regulating ICO’s operation is of major concern in these countries.
Advantages and Risks Involved in ICO’s
In order to make a sound investment decision, it is advisable for one to analyze both the merits and risks involved. This applies to ICO’s. Since its creation, ICO has benefited a lot of companies and investors by helping them grow financially and have a stronger hold in the market. Unlike venture capital and banks, ICO does not pose almost impossible hurdles in order for one to qualify for funding. What’s more, companies do not incur transaction costs which are usually charged by banks and other financial institutions.
The main risk associated with ICO is it’s regulation issues, since it relies on cryptocurrencies which are not adequately regulated. Considering it works in an almost similar manner to an Initial Public Offering – IPO (which is highly regulated) ICO has quite a long way to go.
Types of ICO’s
Since its creation, no ICO can be said to be exactly similar to another. Different companies have come up with their own unique ways and preferences on how to design an ICO. This is attributed lack of strict regulation and proper guidance on how to create it. Nonetheless, it is still possible to distinguish them based on their pricing mechanisms. Below are the four main categories used in ICOs:
1. Price goes up – In this situation ICO creators set a price for its tokens, which is bound to go up after a given time period. The increase in price is periodic and depends on if the ICO is well received in the market. Early investors tend to get the best deal.
2. Price lowers – The ICO tokens begin selling at a particular price which decreases as the auction draws to an end.
iii. Price is constant – The price is set in stone allowing investors to purchase as many tokens as they would like. After the selling period, they are not allowed to transfer their acquired coins for a given time period.
3. Flexible Price – an ICO in this category does not have a set price, it fluctuates depending on the number of tokens purchased by an investor. Once willing investors show up, the total amount of funds available is divided by the number of tokens to determine the price of each.
How to Create an ICO
Now, that you have understood what an ICO is, let’s move on to the next step – How to create one.
You do not have to be a crypto expert in order to so. All you need is to carefully observe and follow the following steps.
Step 1 – Have a Viable Project
First and foremost, you need to have a project or a business you need to upgrade. Figure out all the important details with regards to the project. Before putting in their money, investors will want to know how you intend to run the project and make your ICO tokens grow in value with time.
Step 2 – Research
Conduct a thorough research on the types of successful ICO created before and what contributed to their success. This information can be acquired from the internet.
Important points of concern should be their teams, advisors, marketing strategies, investors, white papers and reviews. This will help you know what possible investors are likely to look out for before deciding to invest in your idea.
You should also find out if there are competitors out there with regards to what you have in mind. If present, how do you intend to outshine them?
Step 3 – Create a White Paper
A white paper is a document that clearly details; the problem at hand, a suitable solution to it, a well detailed description of the proposed product and how users are going to operate it.
A white paper can be said to be the backbone of ICO since it is what an investor will use to get more info about your project and choose whether to support your it or not. Considering how important this document is, it is recommendable to hire a professional to lay it down for you after drafting the main points.
Advisors will also come in handy as they help provide constructive critcism. They can be found in several ICO sites, the most common being ICObench. Usually, the higher an advisor is on this list the more ICOs they have contributed to. The level of experience may also be directly proportional to the amount of compensation an advisor expects.
Step 4 – Come up with an Effective Team
Designing an ICO is not a one man’s job. The team you choose will play a big role in determining the success of the venture.
“None of us is as smart as all of us”- Ken Blanchard
You need to find people who will make considerable contributions into the venture. Such include technical specialists, chief officers, designers, ICO & legal advisors, market specialists and analysts among others.
There are many ways to come up with a winning team. You can look them up on social media sites, especially Linked in, and find out their qualifications and specialties. Ensure to be thourough about this as there have reportedly been cases of people who put up fake profiles, with an aim of duping people. Reach out to them directly and ask for proofs of their experience. Later, you will be grateful that you took your time in this step.
Once you have established your team, the next step is to determine the main form of communication. Most probably your team will include people from different geographical locations, which is a great idea as it brings about diversity in ideas. In this case, decide on a specific form of communication. In today’s world there are so many to choose from, especially online. A team whose majority of members (or the whole of it) is able to meet up and work together stands a much better chance at winning ICOs.
Step 4 – Acquire Legal Counsel
Ensure the country you intend to launch an ICO fully embraces its use. After getting your facts right, you can then go ahead and seek a suitable lawyer. The word suitable is highlighted since not every lawyer can offer sound legal advice on cryptocurrencies. It is recommended to look for one who has handled ICOs before. In your research, look for companies who have launched successful ICOs and find out who their legal advisors were. Alternatively, you can look up legal firms online who solely offer ICO legal advise.
Step 5 – Put up a Website
A website enables interested parties easily view all you have to offer wherever they are in the world. A shoddy website could make potential investors loose ‘taste’ in your project. Shoddy describes a website which is, slow to load, with poor hosting, boring, with lack of useful information, complex and is not engaging.
What should you Include in a Website?
1. Languages Option: To cover all the common languages in the world. Interested parties may come from different parts of the world.
2. Homepage: First impressions matter and so does your homepage. It should be attractive enough for visitors to desire to see more, contain a summary of what your website(project is about) and also include useful links to which users can use to easily move between different pages.
iii. About the ICO: It is advisable to have a page assigned to fully explain all the relevant details with regards to your project. Use tables, graphics and figures whenever you can. Avoid being too technical, use a language that can easily be understood by an averagely learned individual. Usually, if you use too much jargon, some people may get the idea that you are trying to scam them off by ‘hiding’ behind the technical language.
– Tokens Page: All the necessary details about offered tokens should be included. This includes when they shall be up for sale,how much each will go for, accepted medium of currency and how they can be used among others.
– Relevant Documents: Include all the documentation your potential investors may desire to see in relation to the project.
– Updated Contact Information: In case someone needs more information, how can they get in touch. Phone numbers, fax, and emails will work. Additionally, you can include social media pages which users can follow. You can then use these platforms to keep them updated with new information.
vii. Who You are: Knowing the people behind a project sometimes increases people’s trust in a given project. Present your team to the world and be sure to highlight all their achievements if possible.
You can get to ready-made solutions. We have prepared a list of the highest quality templates for your winning ICO:
Step 6 – Enhance Your Platform’s Security
Keep hackers off. They are known to breach a network, steal passwords, redirect human traffic, create simple misuse and introduce viruses. If you are not careful with your platform’s security hackers may bring all your hard work down to nothing before you even know it. It is wise to consult with ICO technical experts who can best advise you on how to ensure maximum security for all your platforms.
Step 7: Write a Smart Contract
If you are technically conversant with codes, you can write your own smart contract. Below are among the basics you will need:
A Platform: Ethereum is the most common platform used for writing smart contracts. Given its worldwide popularity, users tend to forget other platforms that also offer the same services. These include: Script in Bitcoin, Automated Transactions, Chain and NXT.
Useful Tools: Different developers have created tools to help in writing smart contracts. Though such tools perform different tasks, their products can be used hand in hand to achieve a common goal. Click on the following tools to find out more: Infura, Mist Browser, Truffle Framework, Metamask, and Remix.
Deployment: Once you are done developing a smart contract you will need to deploy it in the market and test if it works. Testnets make it possible to accomplish this by allowing you to upload and interact with the smart contract free of charge. Usually, smart contracts pay a ‘hosting’ fee to Ethereum for using the platform, Testnets enable developers assess their working without having to pay a dime.
Check out Templates: To get you started you can look up IBM smart contract templates online.
On the other hand, you can hire a smart contract developer to help you out. There are quite a number of developers in social media and freelancing sites. If you go with this option you will not only need to hire the developer but also an external auditor to help you gauge their work.
Step 8 – List, Announce and Market your ICO
There are several reputable websites that can be used to announce your ICO. You can add your project to the ICO list for free and get a rating.
The most common include:
One of the promising and affordable projects to advertise your ICO is CryptoTotem. It has an up-to-date of Pre-ICOs, Ongoing, Upcoming ICOs and compares various ratings of the best ICO analytic agencies.
How you perform this step will determine the number of people you reach and the kind of investors you will acquire.
The most commonly used ICO marketing channels include:
Most recently, the use of airdrops and bounty campaigns has proved to create more hype to a project than any other marketing technique. Airdrops and bounty campaigns involve giving out tokens to a cypto community either for free or after participating in a given task e.g an essay.
You need a marketing team who understands all types of markets available out there. If you disregard a particular form of channel you may end up losing an important group of people.
For example not all age groups/ people find common social sites such as facebook amusing, hence You need to find a way to all appeal to this group of people. Outsourcing and investing in an ICO PR and marketing expert(s) will prove worthwhile.
Do not Forget to…
- Perform a thorough market research before venturing into ICO.
- Hire qualified Professionals.
- Ensure your min. Cap and max. cap remain within reasonable and acceptable values.
- Keep your tokens for significant contributors such as advisors, team members and founders.
- Present investors with over 50% tokens.
- Seek relevant advice whenever stuck.
You now have all the information you need to create a winning ICO. If you were planning to invest in an ICO, the ball is now in your court, use the above tips to create an outstanding one.
Ilya Landzer: Search Engine Marketing (SEM) Manager and Entrepreneur. Specializes in the niche of Blockchain and ICO crypto-markets. Favorite WordPress CMS and SPA. Engaged in full-stack SEO since 2010. Since 2016, active follower to the Top Global Development of ICO projects and Cryptocurrency.
E-mail: [email protected]